P

QQ 02 Quantity per time period (b) Demand curve that recognizes reactions

determined, each individual firm finds its optimal output by equating its own marginal cost curve to the previously determined profit-maximizing marginal cost level for the industry.

Profits are often divided among firms on the basis of their individual level of production, but other allocation techniques can be employed. Market share, production capacity, and a bargained solution based on economic power have all been used in the past. For a number of reasons, cartels are typically rather short-lived. In addition to the long-run problems of changing products and of entry into the market by new producers, cartels are subject to disagreements among members. Although firms usually agree that maximizing joint profits is mutually benefi-

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