Suppose Two Firms, FastNet and SmartCast Are the Only Fast

question 77

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 this scenario, which of the following actions will maximise the industry's economic profit?

• A) Because the firms are colluding, the profit does not change regardless of whether the firms comply with agreement or cheat on the agreement.
• B) Both firms comply with the agreement.
• C) One of the firms complies with the agreement while the other firm cheats, producing more than the agreed amount.
• D) Both firms cheat on the agreement, producing more than the agreed amount.

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Definitions:

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Minimum Wage

The lowest legal hourly pay that employers can pay workers, set by government law.

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The marketplace in which employers find workers and workers find jobs, characterized by supply and demand for labor.