Question

Consider a game of the "Jack and Jill" type in which a market is a duopoly and each firm decides to produce either a "high" quantity of output or a "low" quantity of output. If the two firms successfully reach and maintain the cooperative outcome of the game, then :a. both the combined profit of the firms and total surplus are maximized.b. the combined profit of the firms is maximized but total surplus is not maximized.c. the combined profit of the firms is not maximized but total surplus is maximized.d. neither the combined profit of the firms nor total surplus is maximized.

Answer 1

c. the combined profit of the firms is not maximized but total surplus is maximized.

Step-by-step explanation:

Where there is a duopoly market, it basically means that for the concerned product there are only two producers in the market for the product, and accordingly they rule the market.

When one company produces high quantity and the other low then they might be able to reach at the combined level profit which is maximized, but there will not be any kind of surplus.

This is because when there are only two companies producing each shall produce quantities in bulk, which shall generate huge amount of surplus in the market, although in that case when there is huge supply the profits might be low.