Multiple Choice
Suppose two firms, FastNet and SmartCast are the only fast Internet providers in a city. They have identical costs and one firm's service is a perfect substitute for the other's. The industry is a natural duopoly. Suppose that FastNet and SmartCast collude and agree to share the market equally.
-In the scenario above, if both firms cheat on the agreement, producing more than the agreed amount, then:
A) Each firm makes zero economic profit.
B) The outcome is identical to a monopoly.
C) The industry's economic profit is the maximum profit that can be made by the duopoly.
D) Each firm makes a greater economic profit than it would make if it complied with the agreement.
Correct Answer:
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