In the scenario above, if both firms cheat on the agreement, producing more than the agreed amount, then
A) each firm makes zero economic profit.
B) the outcome is identical to a monopoly.
C) the industry's economic profit is the maximum profit that can be made by the duopoly.
D) each firm makes a greater economic profit than it would make if it complied with the agreement.

Question

Quizplus · Accepted Answer

When both firms cheat and produce more than the agreed amount, they drive down the market price due to increased supply, leading to zero economic profit for each firm, similar to a perfectly competitive market outcome.

In the Scenario Above, If Both Firms Cheat on the Agreement