ATC and MC curves of one of the firms. If perfectly competitive conditions prevail, then each firm will produce the quantity OR (in B) and the total output of the industry will be OQ (in A). The market price will be OP, and each firm will just cover its cost. If however, each firm restricts its output to OF, industry output will be only OI; with the smaller quantity OI being offered on the market, the price OM can be charged. Each firm is now able to earn profit. Its cost of production per unit is FG (its output being OF); selling price per unit being equal to FH, it earns a profit of GH on each of the OF units which it sells, for a total profit amounting to the shaded area LKHG.
In order for all firms to achieve this profit, each must keep its output down to OF, so that the output of the industry as a whole is only OI, enabling firms to charge a market price of OM. The agreement may be in the form of a binding contract, a verbal undertaking, or perhaps an unspoken “understanding”. A more detailed description is given in the next chapter of the various methods whereby oligopolists may achieve such collusion.
Related Websites - China Buying Gold On The Sly! I just read this interesting article in the Financial Times. Seems like China has tired of US dollars and is looking to get rid of them. Beijing Bets on Bullion  By Patti Waldmeir in Shanghai , Financial Times, 6 May...
- Riskiest Real Estate Markets In The US A lot of people are wondering where to invest in order to catch the next real estate boom. I don't have a ready answer for that, but Forbes magazine was nice enough to tell us where the riskiest markets are....
- 3 Ways to Determine Gold Coin Prices There are many different kinds of coins you can collect. You can collect the standard coins which are distributed throughout society. You can also collect all of the commemorative coins which are designated to pay respects to the different states,...
- 4 Stages of Learning [/caption] Get the Competitive Edge with Ken DeHart Learning a new skill can be quite challenging. There are 4 basic stages we often encounter to take a new skill from unawareness to an unconscious performance level. Stage 1 Unconsciously Incompetent...