If a duopoly has reached the monopoly outcome and only one firm increases its production,that firm's profit ________ and the other firm's profit ________.
A) increases; increases
B) increases; decreases
C) decreases; increases
D) decreases; decreases
E) increases; does not change

Question

Quizplus · Accepted Answer

If one firm increases its production in a monopoly outcome, the quantity supplied in the market increases, leading to a decrease in the market price. As the other firm does not change its production, the increase in the quantity supplied comes only from the first firm's production. Thus, the cost of producing an extra unit of output is higher for the first firm, while the marginal revenue from selling that extra unit is lower due to the market price decrease. Therefore, the first firm's profit will decrease, while the other firm's profit will increase as they can sell their output at a higher price due to the market's lower supply.

If a Duopoly Has Reached the Monopoly Outcome and Only