Suppose Two Firms, FastNet and SmartCast Are the Only Fast

question 280

Multiple Choice

Suppose two firms, FastNet and SmartCast are the only fast Internet providers in a city. They have identical costs and one firm's service is a perfect substitute for the other's. The industry is a natural duopoly. Suppose that FastNet and SmartCast collude and agree to share the market equally.
-In the scenario above, if both firms cheat on the agreement, producing more than the agreed amount, then:

• A) Each firm makes zero economic profit.
• B) The outcome is identical to a monopoly.
• C) The industry's economic profit is the maximum profit that can be made by the duopoly.
• D) Each firm makes a greater economic profit than it would make if it complied with the agreement.

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Definitions:

Remeasured

The process of adjusting the value of an asset or liability to reflect its current market value or to correct any errors in initial measurement.

Depreciation Expense

The portion of the total cost of a tangible asset that is charged as an expense to the income statement over its useful life, reflecting wear and tear.

Temporal Method

An exchange rate conversion method used in international finance to translate the financial statements of a foreign subsidiary to the parent company's currency, involving specific asset and liability conversions at historical exchange rates.

Remeasured

Adjusted or recalculated, often in the context of converting the value of foreign currency transactions or financial statements into a functional currency.