Reference: 11110
-(Exhibit: Monopoly Through Collusion) The exhibit illustrates the situation in an industry that consists of two firms facing identical demand curves; the demand curve for each firm is D₁.Which of the following assumptions is part of the analysis illustrated by the model?

Question

Reference: 11110

-(Exhibit: Monopoly Through Collusion) The exhibit illustrates the situation in an industry that consists of two firms facing identical demand curves; the demand curve for each firm is D₁.Which of the following assumptions is part of the analysis illustrated by the model?

Quizplus · Accepted Answer

The exhibit illustrates the situation where two firms facing identical demand curves can maximize their combined economic profit through cooperation as a cartel. This assumption is depicted by the overlapping shaded area, which represents the joint monopoly profit that the two firms can earn by colluding to restrict output and raise prices. Option A is incorrect, as the exhibit does not provide any information on the firms' marginal and average costs. Option B is incorrect, as the demand curve for each firm is identical, indicating that they sell the same product. Option C is incorrect, as the MR curve is relevant for each firm's choices, particularly in determining the profit-maximizing level of output.

Reference: 11110 -(Exhibit: Monopoly Through Collusion)The Exhibit Illustrates the Situation in an Situation