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 Utility

The additional satisfaction a consumer gains from consuming one more unit of a good or service.

Income

The money received, especially on a regular basis, for work or through investments.

Risk-averse

Describes individuals or entities that prefer to avoid risks and would opt for a sure thing over a gamble with a potentially higher payoff.

Researcher

An individual engaged in systematic investigation to establish facts or principles or to collect information on a subject.