Suppose that the duopolists competing in Cournot fashion agree to produce the collusive output. Given that firm 2 commits to this collusive output, it pays firm 1 to:
A) cheat by producing a higher level of output.
B) cheat by producing a lower level of output.
C) cheat by raising prices.
D) None of the answers is correct.

Question

Quizplus · Accepted Answer

In a Cournot duopoly, if firm 2 commits to a collusive output, firm 1 can increase its profit by producing more than the collusive output, thereby capturing a larger market share and benefiting from the higher market price.

Suppose That the Duopolists Competing in Cournot Fashion Agree to Produce