Figure: Monopoly Profits in Duopoly (Figure: Monopoly Profits in Duopoly) Given the duopoly industry illustrated in the figure Monopoly Profits in Duopoly, if each firm acted on the belief that it faced demand curve D2 and acted without consideration of the other, each firm would attempt to maximize economic profits by producing quantity ________ and setting price equal to _.
A)Q4; P₁
B)Q4; P₂
C)Q₁; P₄
D)Q₂; P₂

Question

Figure: Monopoly Profits in Duopoly   (Figure: Monopoly Profits in Duopoly) Given the duopoly industry illustrated in the figure Monopoly Profits in Duopoly, if each firm acted on the belief that it faced demand curve D2 and acted without consideration of the other, each firm would attempt to maximize economic profits by producing quantity ________ and setting price equal to _.
A)Q4; P₁ 
B)Q4; P₂ 
C)Q₁; P₄ 
D)Q₂; P₂

Quizplus · Accepted Answer

Each firm would produce where MC=MR, which is at Q2, and set price equal to P2. This is because each firm assumes it faces the D2 demand curve, which intersects with the MR curve at Q2 and P2.