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-(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 is 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, the price of crude oil will be:
A) $0.
B) $70.
C) $80.
D) $160.

Question

Use the following to answer questions: 
-(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 is 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, the price of crude oil will be:
A) $0. 
B) $70. 
C) $80. 
D) $160.

Quizplus · Accepted Answer

If firm 1 cheats and increases production, the total quantity increases, leading to a decrease in price. Given the context of a duopoly and zero marginal cost, the price will adjust to reflect the new equilibrium, which is $70.

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