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 comply with the agreement
A) together they will operate in a way indistinguishable from a monopoly.
B) the price of a hard drive will be equal to marginal cost.
C) each firm will make zero economic profit.
D) the oligopoly will produce more hard drives than a profit-maximizing monopoly would produce.

Question

Quizplus · Accepted Answer

When both firms comply with the collusive agreement, they act like a monopoly by splitting the market and maximizing joint profits, leading to monopoly-like outcomes.

Two Firms, Alpha and Beta, Produce Identical Computer Hard Drives