revenue curve for firms in an oligopolistic industry. In this example, we assume firms have zero fixed

costs.

FIGURE 10.6

a. Suppose the firms collude to form a cartel. What price will the cartel charge? What quantity will the

cartel supply? How much profit will the cartel earn?

b. Suppose now that the cartel breaks up and the oligopolistic firms compete as vigorously as possible by

cutting the price and increasing sales. What will be the industry quantity and price? What will be the

collective profits of all firms in the industry?

c. Compare the equilibrium price, quantity, and profit for the cartel and cutthroat competition outcomes.

4. Sometimes oligopolies in the same industry are very different in size. Suppose we have a duopoly where

one firm (Firm A) is large and the other firm (Firm B) is small, as the prisoner’s dilemma box in Table 10.4

shows.

Firm B colludes with Firm A Firm B cheats by selling more output

Firm A colludes with Firm B
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