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

-(Exhibit: Monopoly Through Collusion) For this question assume that the duopoly industry illustrated in the exhibit produces a perishable good.If each firm acted on the belief that it faced demand curve D₂ and acted without consideration of the other firm's behavior, the market price would likely end up being _______ and the combined economic profits of the firms would be _______ .
A) P₁; given by the area of the rectangle bounded by 0P₁CQ₄
B) P₁; zero
C) P₃; given by the area of the rectangle bounded by 0P₃AQ₁
D) P₂; given by the area of the rectangle bounded by P₁P₂BG

Question

Use the following to answer question(s): Monopoly Through Collusion
 
-(Exhibit: Monopoly Through Collusion) For this question assume that the duopoly industry illustrated in the exhibit produces a perishable good.If each firm acted on the belief that it faced demand curve D₂ and acted without consideration of the other firm's behavior, the market price would likely end up being _______ and the combined economic profits of the firms would be _______ .
A) P₁; given by the area of the rectangle bounded by 0P₁CQ₄ 
B) P₁; zero 
C) P₃; given by the area of the rectangle bounded by 0P₃AQ₁ 
D) P₂; given by the area of the rectangle bounded by P₁P₂BG

Quizplus · Accepted Answer

If each firm acted on the belief that it faced demand curve D₂ and acted without consideration of the other firm's behavior, they would produce where MR=MC for each firm, resulting in a market price of P₁ and zero economic profits for both firms.

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