Two Identical Firms
Two identical firms make up an industry in which the market demand curve is represented by Q = 5,000 - 4P, where Q is the quantity demanded and P is price per unit. The marginal cost of producing the good in this industry is constant and equal to $650. Fixed cost is $0.
(Scenario: Two Identical Firms) Use the information from the scenario Two Identical Firms. If one firm in the scenario decides to cheat, the cheating firm will:
(a) Find that cheating initially leads to an increase in both of the firms' profits.
(b) Be able to increase its profits initially.
(c) Find that the noncheating firm will have an increase in its profits alone.
(d) Find that cheating leads to a decrease in its profits alone.