Suppose that the duopolists competing in Cournot fashion agree to produce the collusive output.Given that firm 2 commits to this collusive output,it pays firm 1 to:
A) cheat by producing a higher level of output.
B) cheat by producing a lower level of output.
C) cheat by raising prices.
D) None of the preceding answers is correct.

Question

Quizplus · Accepted Answer

In a Cournot duopoly where firms agree to produce the collusive output, it pays for firm 1 to cheat by producing a higher level of output. This is because by increasing its output, firm 1 can capture a larger share of the market, thereby increasing its profits at the expense of firm 2.

Suppose That the Duopolists Competing in Cournot Fashion Agree to Produce