Question

Suppose that zion and haidy are duopolists in the music industry. in may, they agree to work together as a monopolist, charging the monopoly price for their music and producing the monopoly quantity of songs. by june, each singer is considering breaking the agreement. what would you expect to happen next?

O zion and haidy will determine that it is in each singer's self-interest to maintain the agreement.
O zion and haidy will each break the agreement.
O the new equilibrium quantity of songs will increase, and the new equilibrium price also will increase.
O zion and haidy will each break the agreement.
O both singers' profits will increase. zion and haidy will each break the agreement.
O both singers' profits will decrease.

Answer 1

Zion and Haidy are likely to break their collusive agreement due to the private temptation to produce more and earn more profit individually, leading to an outcome where they could end up earning lower profits in a more competitive market.

Step-by-step explanation:

When Zion and Haidy agree to work together as a monopolist in the music industry, they are engaging in a form of collusion typical of a cartel. If they followed through on their agreement, they would charge the monopoly price, produce the monopoly quantity, and potentially earn higher profits.

However, each singer faces a private temptation to produce more songs and earn slightly more profit, assuming the other maintains the agreed-upon reduced production to keep prices high. This represents a classic example of the Prisoner's Dilemma in which each party's optimal decision individually leads to a suboptimal outcome collectively.

Given this scenario, one could expect that over time, Zion and Haidy will each break the agreement. By doing so, they would increase the industry quantity, push the prices down due to competition, and, paradoxically, earn a lower profit—possibly even reaching the level of zero economic profits as if they were in a state of perfect competition.