Question

Two doctors are the only veterinarians in town. These vets operate in​ ______ and can​ ______.

A.a​ duopoly; form a cartel to increase their profits​ (even though this would be​ illegal)

B.an​ oligopoly; increase production to achieve economies of scale

C.a​ duopoly; decrease the deadweight loss in the market by forming a cartel​ (even though this would be​ illegal)

D.a​ duopoly; increase consumer surplus by forming a cartel​ (even though this would be​ illegal)

E.a natural​ monopoly; eliminate excess capacity by decreasing their production

Answer 1

Answer: A. A Duopoly; form a cartel to increase their profits ( even though this would be illegal).

A Duopoly is a Market structure where there are two major sellers and a large number of buyers.

When there are two prominent sellers, naturally there would be competition between them which will lead to lower profits for both of them. To avoid this situation , they can come together to form a cartel. By agreeing to form a cartel , they can act as a monopoly and earn more profits, even though it is illegal. This will lead to lower consumer surplus and more dead weight loss.

Let me know if anything is unclear :)