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

question 55

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 comply with the agreement,

• A) together they will operate in a way indistinguishable from a monopoly.
• B) the oligopoly will produce more hard drives than a profit- maximising monopoly would produce.
• C) each firm will make zero economic profit.
• D) the price of a hard drive will be equal to marginal cost.

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