Two firms, Alpha and Beta, produce identical computer hard drives. They have identical costs, and the hard drives they produce are identical. The industry is a natural duopoly. Alpha and Beta enter into a collusive agreement, according to which they split the market equally. If both firms cheat on the agreement so the market is the same as a competitive market
A) they will operate in a way indistinguishable from a monopoly.
B) each firm will make zero economic profit.
C) each firm will increase its economic profit.
D) the price of a hard drive will be above marginal cost.

Question

Quizplus · Accepted Answer

If both firms cheat and the market becomes competitive, the price will fall to the level of marginal cost, leading to zero economic profit for each firm.

Two Firms, Alpha and Beta, Produce Identical Computer Hard Drives