If there is a successful collusive agreement in a duopoly to maximize profit,
A)the market price will equal the marginal cost of production.
B)the market price will equal the average total cost of production.
C)the price will be the same as the price in a perfectly competitive market.
D)the price will be the monopoly price.
E)the market marginal revenue will be the same as the demand curve.

Question

Quizplus · Accepted Answer

In a successful collusive agreement, the firms act as a single entity and charge the monopoly price, which is higher than the price in a perfectly competitive market. The firms also restrict output to maximize profit, resulting in a lower quantity supplied than in a competitive market. Therefore, the price will not equal marginal cost or average total cost, and the market marginal revenue may not be the same as the demand curve.

If There Is a Successful Collusive Agreement in a Duopoly