Use the following to answer question(s): Monopoly Through Collusion

-(Exhibit: Monopoly Through Collusion) The exhibit illustrates the situation in an industry that consists of two firms facing identical demand curves; the demand curve for each firm is D₁.Which of the following assumptions is part of the analysis illustrated by the model?
A) The two firms have identical marginal cost but different average total cost.
B) The two firms sell differentiated products.
C) The MR curve is not relevant to either firm's choices.
D) If the firms cooperate by acting as a cartel, they can maximize their combined economic profit.

Question

Use the following to answer question(s): Monopoly Through Collusion
 
-(Exhibit: Monopoly Through Collusion) The exhibit illustrates the situation in an industry that consists of two firms facing identical demand curves; the demand curve for each firm is D₁.Which of the following assumptions is part of the analysis illustrated by the model?
A) The two firms have identical marginal cost but different average total cost. 
B) The two firms sell differentiated products. 
C) The MR curve is not relevant to either firm's choices. 
D) If the firms cooperate by acting as a cartel, they can maximize their combined economic profit.

Quizplus · Accepted Answer

The exhibit illustrates the assumption that if the firms cooperate by acting as a cartel, they can maximize their combined economic profit. This is shown by the joint profit-maximizing output level (Qm) and price (Pm) where the marginal cost equals marginal revenue. A and B are incorrect as the exhibit assumes the two firms have identical marginal cost and sell identical products. C is incorrect as the MR curve is necessary for each firm to make profit-maximizing choices.

Use the Following to Answer Question(s): Monopoly Through Collusion