Two firms,Alpha and Beta,produce identical computer hard drives.They have identical costs,and the hard drives they produce are identical.The industry is a natural duopoly.Alpha and Beta enter into a collusive agreement,according to which they split the market equally.If both firms comply with the agreement,
A)together they will produce the monopoly quantity and make the monopoly economic profit.
B)the price of a hard drive will equal marginal cost.
C)each firm will make zero economic profit.
D)the oligopoly will produce more hard drives than a profit-maximizing monopoly would produce.
E)the oligopoly will produce fewer hard drives than a profit-maximizing monopoly would produce.

Question

Quizplus · Accepted Answer

In a collusive agreement where two firms split the market equally, they effectively act as a monopoly. This means they will produce the monopoly quantity and make the monopoly economic profit, as they can set prices above marginal cost to maximize profits.

Two Firms,Alpha and Beta,produce Identical Computer Hard Drives