Question

suppose that the duopolists competing in cournot fashion agree to produce the collusive output. given that firm 2 commits to this collusive output, it pays firm 1 to: group of answer choices none of the answers is correct. cheat by raising prices. cheat by producing a higher level of output. cheat by producing a lower level of output.

Answer 1

Firm 1 would pay Firm 2 to cheat by producing a higher level of output.

Step-by-step explanation:

In the scenario of collusive output in a Cournot competition, if Firm 2 commits to the collusive output, it pays Firm 1 to cheat by producing a higher level of output.

In a collusive agreement, the firms cooperate to reduce output and keep prices high, mimicking a monopoly. However, one firm can benefit by producing more and gaining a larger share of the market.

By producing a higher level of output, Firm 1 can potentially attract more customers and earn higher profits, while Firm 2 adheres to the collusive output level.