Profit Maximization

Must consider reaction of rival oligopolists.

In the absence of collusion, output rises to where demand =LRATC and no oligopolist makes an economic profit.

With perfect collusion, output is held down to where MR = LRATC and profit per unit = (Price from demand curve - Price from LRATC curve) at this level of output. Oligopolists have a strong incentive to collude {to keep the price high}, but also a strong incentive to cheat {to increase output and market share}.