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

-(Exhibit: Monopoly Through Collusion) Given the duopoly industry illustrated in the exhibit, if the two firms colluded to maximize their joint profits, the market price they would set would be _______ and each firm's economic profit would be _______ .
A) P₂; given by the area of the rectangle bounded by P₁P₂EF = FEBG
B) P₁; P₁P₃AF
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) Given the duopoly industry illustrated in the exhibit, if the two firms colluded to maximize their joint profits, the market price they would set would be _______ and each firm's economic profit would be _______ .
A) P₂; given by the area of the rectangle bounded by P₁P₂EF = FEBG 
B) P₁; P₁P₃AF 
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 the two firms collude to maximize their joint profits, they will act as a monopolist and jointly determine the output and price that maximize their profits. The market price they would set would be P₂, which is the price where MR=MC (Marginal Revenue=Marginal Cost) and the quantity they would produce would be Q*, which is where the profit-maximizing output intersects with the market demand curve. Each firm's economic profit would be given by the area of the rectangle bounded by P₁P₂EF = FEBG, which represents the difference between the total revenue generated and the total cost incurred by each firm. Therefore, the correct answer is A) P₂; given by the area of the rectangle bounded by P₁P₂EF = FEBG.

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