(Table: Demand for Crude Oil) Look at the table Demand for Crude Oil.Assume that the crude oil industry is a duopoly and the marginal cost of producing crude oil equals zero.Suppose that the two firms are maximizing industry profit and splitting the profit evenly.If firm 1 decides to cheat and increase production by 10 more barrels, total industry output will be barrels.
A)160
B)100
C)90
D)80

Question

Quizplus · Accepted Answer

Looking at the table, we can see that at an industry output of 90 barrels, the price will be $70 per barrel. If firm 1 decides to increase production by 10 more barrels, total industry output will be 100 barrels, which will decrease the price to $60 per barrel. As a result, firm 1's revenue will decrease from $700 to $600 per day, while firm 2's revenue will remain unchanged at $400 per day. Therefore, it is not in the best interest for firm 1 to cheat, and the best choice is for both firms to stick to the current output level of 45 barrels each, resulting in a total industry output of 90 barrels.

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