Figure 8.8
-Figure 8.8 shows demand, marginal revenue, and costs of a duopolist. Suppose that the two duopolists have the same costs. If the two firms form a cartel and charge the profit maximizing monopoly price, then compared to perfect competition each firm's profit will be ________ and the total output level will be ________.

Question

Quizplus · Accepted Answer

When firms form a cartel, they act like a monopoly, setting higher prices than in perfect competition, which leads to greater profits for the firms. However, the total output level decreases compared to perfect competition, as the monopoly price is above the competitive equilibrium price, leading to a reduction in quantity supplied.

Figure 8.8 -Figure 8.8 Shows Demand, Marginal Revenue, and Costs of a of a Duopolist