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-(Table: Demand for Crude Oil)Use Table: Demand for Crude Oil.Assume that the crude oil industry is a duopoly and the marginal cost of producing crude oil is zero.Suppose that the two firms are maximizing industry profit and splitting the profit evenly.If firm 1 decides to cheat and increase production by 10 more barrels,the price of crude oil will be:
A)$0.
B)$70.
C)$80.
D)$160.

Question

Use the following to answer question: 
-(Table: Demand for Crude Oil)Use Table: Demand for Crude Oil.Assume that the crude oil industry is a duopoly and the marginal cost of producing crude oil is zero.Suppose that the two firms are maximizing industry profit and splitting the profit evenly.If firm 1 decides to cheat and increase production by 10 more barrels,the price of crude oil will be:
A)$0. 
B)$70. 
C)$80. 
D)$160.

Quizplus · Accepted Answer

Given that the marginal cost of producing crude oil is zero and the firms are initially maximizing industry profit, if Firm 1 decides to cheat by increasing production, it will affect the market price. Without the specific table data, the general principle in a duopoly (especially in a Cournot model) is that increasing production by one firm, assuming it exceeds the collusion quantity, will lead to a decrease in the market price due to the increased supply. Since we cannot calculate the exact price without the table, and assuming the choices reflect possible outcomes based on typical scenarios, $70 could be considered a plausible price after an increase in production, reflecting a decrease from a higher initial price due to the increased supply.

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