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

Douglas Jenkins

Business

22 July, 09:23

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.

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Answers (1)

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Cara Marks · Answer 1

c. each duopolist wants a larger share of the market to capture more profit.

Explanation:

An agreement between two duopolists to function as a monopolist usually breaks down because each duopolist wants a larger share of the market to capture more profit.

When the market is occupied by few firms as it is in the case of a duopoly, the possibility of collusion exists because it is characteristic of duopolies to set price and determine quantity to be produced in the bid to maximize profits. Nevertheless this collusion is usually short-lived because ultimately each firm faces the selfish desire of gaining more market share by cutting prices.