Use the following to answer question:
-(Table: Demand for Crude Oil)Use Table: Demand for Crude Oil.Assume that the crude oil industry is a duopoly and the marginal cost and fixed cost of producing crude oil equals zero.Suppose that the two firms are maximizing industry profit and splitting the profit evenly.If firm 1 decides to cheat and increase production by 10 more barrels and firm 2 continues to produce 40 barrels,firm 2 will earn profits of:
A)$6,400.
B)$6,300.
C)$3,500.
D)$2,800.

Question

Use the following to answer question: 
-(Table: Demand for Crude Oil)Use Table: Demand for Crude Oil.Assume that the crude oil industry is a duopoly and the marginal cost and fixed cost of producing crude oil equals zero.Suppose that the two firms are maximizing industry profit and splitting the profit evenly.If firm 1 decides to cheat and increase production by 10 more barrels and firm 2 continues to produce 40 barrels,firm 2 will earn profits of:
A)$6,400. 
B)$6,300. 
C)$3,500. 
D)$2,800.

Quizplus · Accepted Answer

Given that the marginal and fixed costs are zero, the profit for a firm is simply its share of the total revenue. If Firm 1 increases production by 10 barrels (from an unspecified base amount), and Firm 2 continues to produce 40 barrels, we need to know the total quantity produced to determine the price and thus the revenue. However, without the table of demand for crude oil, we cannot calculate the exact profits. The correct answer, D, suggests a specific profit amount for Firm 2 under these conditions, but without the table, we cannot provide the detailed calculation. The answer is based on the assumption that the information provided leads to Firm 2 earning $2,800 in profits when Firm 1 cheats by increasing production.

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