Use the following to answer questions: Figure: Monopoly Profits in Duopoly -(Figure: Monopoly Profits in Duopoly) The figure Monopoly Profits in Duopoly shows how an industry consisting of two firms that face identical demand curves (D₁) can collude to increase profits. The market demand curve is D_2. Which of the following assumptions is part of the analysis illustrated by the model? A) The two firms have identical marginal cost but different average total cost. B) The two firms sell differentiated products. C) The MR curve is not relevant to either firm's choices. D) The firms can act as a cartel and maximize their combined economic profit.

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The model assumes that the two firms can collude and act as a cartel to maximize their combined economic profit, which is why they can achieve monopoly profits in a duopoly setting.

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