(Table: Demand for Crude Oil) The table Demand for Crude Oil shows the demand schedule for crude oil.Assume that the crude oil industry is a duopoly and the marginal cost of producing crude oil equals zero.If the two firms collude to share the market equally, the price of crude oil will be ________, firm 1 will produce ________ barrels, firm 2 will produce barrels,
And each firm will earn revenue equal to _.

Question

Quizplus · Accepted Answer

If the two firms collude to share the market equally, they will each produce half of the total quantity demanded at that price. In this case, the price at which both firms produce 40 barrels is $80. Hence, the price of crude oil will be $80, firm 1 will produce 40 barrels, firm 2 will produce 40 barrels, and each firm will earn revenue equal to $80 x 40 = $3,200. This is the best outcome for both firms, as each firm earns a profit of $2,900 ($3,200 - $300) which is the highest possible profit each firm can achieve without triggering a price war. Therefore, option B is the best choice.

(Table: Demand for Crude Oil) the Table Demand for Crude