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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 and fixed 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 and firm 2 continues to produce 40 barrels, firm 2 will earn profits of:
A) $6,400.
B) $6,300.
C) $3,500.
D) $2,800.

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 and fixed 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 and firm 2 continues to produce 40 barrels, firm 2 will earn profits of:
A) $6,400. 
B) $6,300. 
C) $3,500. 
D) $2,800.

Quizplus · Accepted Answer

If firm 1 increases production, the market price will decrease due to increased supply. Firm 2's profit will be calculated based on the new price and its production of 40 barrels.

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