W4/A2/04
Calculating the Industry Output and Market Share
Assume you are the manager of Abba Cable...

Question

W4/A2/04
Calculating the Industry Output and Market Share
Assume you are the manager of Abba Cable Company, which provides commercial communication services to the town of Canyon Lake, Texas. Because of licensing restrictions in the market, only your company and two others (Babba and Cabba) are allowed to operate in this market. The three companies decide to form a cartel and divide the market shares such that each company will provide services that will maximize its profits. The licensing restrictions allow each company to sell as much as it wants at a price ceiling of $2,200.
	
Document Preview: W4/A2/04Calculating the Industry Output and Market ShareAssume you are the manager of Abba Cable Company, which provides commercial communication services to the town of Canyon Lake, Texas. Because of licensing restrictions in the market, only your company and two others (Babba and Cabba) are allowed to operate in this market. The three companies decide to form a cartel and divide the market shares such that each company will provide services that will maximize its profits. The licensing restrictions allow each company to sell as much as it wants at a price ceiling of $2,200. You have the following output and MC data for each company:OutputMC ($)QAbbaBabbaCabba1,0002,5002,6002,7002,0002,4002,3002,5003,0002,2002,1002,3004,0002,0002,0002,1005,0002,1002,2002,2006,0002,2002,5002,300Calculate the industry output and market share at the current price of $2,200, assuming the prices are stable and unlikely to change.Assume the current prices in the market are challenged by the regulatory agency, resulting in a new maximum price of $2,000. How will this change the industry output and market share for each company?Is there any incentive for any company to cheat under either of the conditions in tasks a and b? Why or why not?Create a 2-page Microsoft Word document using these headers:-Introduction-Industry Output and Market Share-Price Change Analysis-To Cheat or Not to Cheat-ConclusionCite any sources using the APA format, provide an Abstract, Introduction, and Conclusion.Calculated the industry output and market share at the current price of $2,200, assuming the prices are stable and unlikely to change.Explained how the new maximum price will change the industry output and market share for each company. Analyzed and justified whether there is any incentive for any company to cheat under either of the given conditions.

David · Accepted Answer

Introduction 
A cartel is a formal agreement between a group of firms producing a particular good in 
view of regulating price and output. The following table shows the output and MC data for the 
three given firms who have formed a cartel. 
Output MC ($) 
Q Abba Babba Cabba 
1,000 2,500 2,600 2,700 
2,000 2,400 2,300 2,500 
3,000 2,200 2,100 2,300 
4,000 2,000 2,000 2,100 
5,000 2,100 2,200 2,200 
6,000 2,200 2,500 2,300
Industry Output and Market Share 
a) It is given that there is a price ceiling of $2200. Now, from the above table we can 
see the different Marginal cost associated with different levels of output for the three industries. 
Since there is a price ceiling, no firm can charge a price above $2200. Assuming that they 
formed a cartel and prices are stable, each firm will equate its MC with the ceilinged price.

W4/A2/04 Calculating the Industry Output and Market Share Assume you are the manager of Abba Cable Company, which provides commercial communication services to the town of Canyon Lake, Texas. Because...

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