Suppose a duopoly had reached the monopoly outcome and then the first firm increased its production.If the second firm next increases its production,the second firm's profit ________ and the first firm's profit ________.
A) increases; increases
B) increases; decreases
C) decreases; increases
D) decreases; decreases
E) increases; does not change

Question

Quizplus · Accepted Answer

When the second firm increases its production in response to the first firm's increase, it typically leads to a decrease in market prices due to higher supply. This can increase the second firm's profit if the price decrease is not too severe and if the firm can sell significantly more product. However, the first firm's profit usually decreases because the increased competition from the second firm lowers prices and potentially the first firm's market share.

Suppose a Duopoly Had Reached the Monopoly Outcome and Then