An agreement between two duopolists to function as a monopolist usually breaks down because
A)they cannot agree on the price that a monopolist would charge.
B)they cannot agree on the output that a monopolist would produce.
C)each duopolist wants a larger share of the market to capture more profit.
D)each duopolist wants to charge a higher price than the monopoly price.

Question

Quizplus · Accepted Answer

Each duopolist wants to capture a larger share of the market to earn more profit, which causes the breakdown of the agreement to function as a monopolist. If one firm decides to increase its output in pursuit of a larger market share, the other firm may respond by also increasing its output to maintain its market share. This action leads to a price war and destroys the agreement.

An Agreement Between Two Duopolists to Function as a Monopolist