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-(Table: Demand for Crude Oil) Look at the table Demand for Crude Oil. Assume that the crude oil industry is a duopoly and the marginal and fixed cost of producing crude oil equals zero. Suppose that the two firms are maximizing industry profit and splitting the profit evenly. If both firms engage in noncooperative behavior, the industry output will be _____ barrels, and the price of crude oil will be _____.
A) 0; $160
B) 80; $80
C) 100; $60
D) 160; $0

Question

Use the following to answer questions: 
-(Table: Demand for Crude Oil) Look at the table Demand for Crude Oil. Assume that the crude oil industry is a duopoly and the marginal and fixed cost of producing crude oil equals zero. Suppose that the two firms are maximizing industry profit and splitting the profit evenly. If both firms engage in noncooperative behavior, the industry output will be _____ barrels, and the price of crude oil will be _____.
A) 0; $160 
B) 80; $80 
C) 100; $60 
D) 160; $0

Quizplus · Accepted Answer

In a duopoly with zero marginal and fixed costs, firms will produce where marginal revenue equals marginal cost, which is zero. This leads to the Cournot equilibrium where each firm produces 50 barrels, totaling 100 barrels, and the price will be $60.

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