Use the Information Below to Answer the Following Questions

question 97

Multiple Choice

Use the information below to answer the following questions.
Fact 15.2.1
Two firms, FastNet and SmartCast are the only Internet providers in a city. They have identical costs and one firm's service is a perfect substitute for the other firm's service. The industry is a natural duopoly. FastNet and SmartCast decide to collude and agree to share the market equally.
-Refer to Fact 15.2.1. Which of the following actions maximizes the industry's economic profit?

• A)Both firms cheat on the agreement.
• B)One firm cheats and one firm complies.
• C)Both firms comply with the agreement.
• D)New firms enter the market.
• E)Both firms charge the price that would exist in a perfectly competitive market.

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Definitions:

Economics

The social science that studies the production, distribution, and consumption of goods and services.

Total Utility

The total satisfaction or pleasure a person derives from consuming a specific quantity of goods or services.

Risk-Averse

Describes individuals who choose to reduce risk when that reduction leaves the expected value of their income or wealth unchanged.

Income Curve

The income curve, in economics, typically relates to a graphical representation showing how a change in income affects consumption or purchasing patterns of individuals or households.