Consider the diagram below which shows the market demand curve for a particular product.Suppose this market is served by two duopolists who each face the marginal cost curve shown in the diagram.The marginal revenue curve that a monopolist would face in this market is also shown.Which of the following statements is true?

Question

Quizplus · Accepted Answer

Since there are two duopolists who are each facing the same marginal cost curve, they will produce where their marginal cost is equal to their marginal revenue, which is given by the intersection of their marginal cost curve with the marginal revenue curve. From the diagram, we can see that this occurs at an output of 2 units. Therefore, the total output in this market will likely be 2 units when the market is served by a duopoly.

At an output of 2 units, the market price will be the point where the market demand curve intersects with the vertical line drawn at this output level. This price is approximately $4. Therefore, the price in this market will likely be $4 when the market is served by a duopoly.

At an output level of 2 units and a price of $4, the total revenue for each firm will be $8. Therefore, the total revenue to each firm will likely be less than $16 when the market is served by a duopoly.

Finally, we can see that the total output in this market will be less than 4 units when served by a duopoly since each firm will be producing 2 units, for a total of 4 units.

Consider the Diagram Below Which Shows the Market Demand Curve