If the only two firms in an industry successfully collude to maximize their joint profit, the price for the product will be

Question

BlackTom AI · Accepted Answer

Colluding oligopolists will set output so that joint marginal revenue (MR) equals marginal cost (MC), then charge the price from the market demand curve — this price is higher than MC. 1) Relevant concepts: - A successful collusion (cartel) by the only two firms makes them act like a single monopolist maximizing joint profit. - Profit maximization for a monopoly: choose Q where MR = MC, then set P from the demand curve P(Q). - For a downward‑sloping demand, MR < P for any positive quantity, so the monopoly (and thus the cartel) price exceeds MC. 2) Step‑by‑step reasoning: - Start with inverse demand P = P(Q). Total revenue TR = P(Q)·Q. Marginal revenue MR = dTR/dQ. - Profit maximization condition: set MR = MC. - Because demand is downward sloping, MR lies below the demand curve (MR < P) for Q > 0. Therefore the price corresponding to the MR = MC quantity will be greater than MC. 3) Calculation example (linear demand for clarity): - Let P = a − bQ. Then TR = P·Q = aQ − bQ^2. MR = dTR/dQ = a − 2bQ. - Set MR = MC: a − 2bQ = MC → Q* = (a − MC) / (2b). - Price: P* = a − bQ* = a − b[(a − MC)/(2b)] = a − (a − MC)/2 = (a + MC)/2. - Compare P* and MC: P* − MC = (a + MC)/2 − MC = (a − MC)/2 > 0 (if a > MC). Thus P* > MC. 4) Why the correct answer is correct: - Collusion yields the monopoly outcome where MR = MC and P is read off the demand curve, which for a downward‑sloping demand always gives P > MC. Hence "above the marginal cost of production" is true. 5) Why other options are incorrect: - "Equal to the marginal cost of production": true in perfect competition, not for a profit‑maximizing cartel/monopoly. - "Equal to the average total cost of production": would imply zero economic profit; collusion seeks to maximize profit and will generally set P > ATC if profitable — not required to be equal. - "Above the monopoly price": a profit‑maximizing cartel acts like a monopoly and sets the monopoly price; raising price above the monopoly price would reduce joint profit. - "Below the average variable cost of production": that would imply firms shut down in the short run; colluding to maximize profit would not choose a price below AVC. 6) Conclusion: The joint‑profit‑maximizing collusion yields a price above marginal cost, confirming the provided answer: above the marginal cost of production.

If the only two firms in an industry successfully collude to maximize their joint profit, the price for the product will be单项选择题

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