Final answer:
In a Cournot equilibrium, firms could increase profits by jointly reducing output and acting like a monopolist, leading to higher prices. However, this assumes there are no restrictions on collusion, which typically are enforced by antitrust laws.
Step-by-step explanation:
If firms are in Cournot equilibrium, they could increase profits by jointly reducing output. In Cournot competition, each firm decides how much to produce based on the quantity produced by its competitors, assuming the competitors' output will remain fixed. A Cournot equilibrium is reached when each firm's output maximizes its profits, given the output of the other firm. If the firms could collude instead of competing, they could act like a monopoly and maximize total industry profits by collectively reducing output, which would increase the market price.
This analysis assumes there are no external factors such as antitrust laws that prohibit collusion. When firms in an oligopoly collude, turning the market into a de facto monopoly, they could raise prices and reduce output to maximize joint profits under the assumption of zero fixed costs and the ability to perfectly control the quantity supplied.
In the case of monopolistic competition, however, as firms earn positive economic profits, the entry of other firms would eventually drive profits to zero in the long run, leading to an equilibrium where firms each produce at the level where marginal revenue equals marginal cost (MR=MC), and no firm earns an economic profit.