Economics (AS & A Level) · May / June 2022 · Paper 32 · Question 12

The diagram shows a firm's marginal and average cost curves. The firm enters a collusive agreement with other firms in the industry. It is agreed that each firm will charge a common price, OP, and will restrict the level of its output to a production quota set by the industry cartel. The firm is allocated a production quota, Oq. [diagram: MC and AC curves with price OP, quota Oq, points G, H, K, N, J, L, M] The firm decides to cheat in order to maximise its profits. What is its short-run increase in profits?

1. APGKL
2. BPHJL
3. CPHJL minus PGNM
4. DPGKL minus LKNM

As printed in the paper