Asked by Zachary Schiffman on Mar 10, 2024
Verified
(Figure: Monopoly Profits in Duopoly) Use Figure: Monopoly Profits in Duopoly.The figure shows how an industry consisting of two firms that face identical demand curves (D1) can collude to increase profits.The market demand curve is D2. If the firms collude to share the market demand equally,then each firm will act as if its demand curve is given by:
A) D1.
B) D2.
C) MR1.
D) 2 × D1.
Monopoly Profits
The excess profits earned by a monopoly as a result of its ability to set price above marginal costs due to lack of competition.
Duopoly
A market structure dominated by two firms, each of which has significant control over the market price.
Demand Curves
Graphical representations showing the relationship between the price of a good and the quantity of that good consumers are willing and able to purchase at different prices.
- Understand the economic implications of duopolies and cartels on market dynamics.
- Analyze how collusion among firms affects market prices, quantities, and profits.
Verified Answer
MC
Marie CurrierMar 10, 2024
Final Answer :
A
Explanation :
If the firms collude to share the market demand equally, each firm will act as if its demand curve is the original curve (D1) because they are splitting the market demand (D2) in half, effectively treating their portion of the demand as the original curve they faced before collusion.
Learning Objectives
- Understand the economic implications of duopolies and cartels on market dynamics.
- Analyze how collusion among firms affects market prices, quantities, and profits.