BUECO5903 Business Economics - Microeconomics Assignment

Question 4:

(a) You are examining and reporting on the market performance of a very small number of firms that are known to often collude in setting output prices and quantities. Illustrate and explain using a diagram what affect this behavior is most likely to have on the allocation of factors of production. (2.5 marks for the diagram plus 2.5 marks for the explanation)

(b) What will happen if one of these firms cheats on the others in some way? Illustrate and
explain using a diagram. (2.5 marks for the diagram plus 2.5 marks for the explanation)