Two Firms,Alpha and Beta,produce Identical Computer Hard Drives

question 36

Multiple Choice

Two firms,Alpha and Beta,produce identical computer hard drives.They have identical costs,and the hard drives they produce are identical.The industry is a natural duopoly.Alpha and Beta enter into a collusive agreement,according to which they split the market equally.If both firms cheat on the agreement so the market is the same as a competitive market,

• A)each firm makes zero economic profit in the long run.
• B)each firm makes the monopoly profit.
• C)the oligopoly will produce fewer hard drives than a profit-maximizing monopoly would produce.
• D)the oligopoly will produce the same number of hard drives as a profit-maximizing monopoly would produce.
• E)each firm incurs an economic loss and exits the market in the long run.

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Definitions:

Marginal Cost of Capital

The additional cost that a company incurs to obtain one more unit of capital, such as equity or debt, often used in making investment decisions.

Common Equity

Represents the share of ownership in a company that is held by common shareholders, including the value of common shares plus retained earnings.

Retained Earnings

The portion of net income that is not distributed to shareholders but instead reinvested in the business or used to pay off debt.

WACC

The Weighted Average Cost of Capital is a metric that calculates a company's cost of capital, with each capital category being weighted proportionally.