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CMA Foundation · Fundamentals of Business Economics and Management · Forms of Market

Two firms, Asha Tea and Bharat Tea, are the only sellers in a market. If both firms agree to fix a common price and share the market, restricting output like a single seller, this arrangement is called:

This is a collusive duopoly. The two sellers cooperate to fix a common price and share the market, acting almost like one monopolist. Independent duopoly models such as Cournot assume each firm decides separately, and monopsony concerns a single buyer.

  1. ACollusive duopolyCorrect
  2. BCournot independent duopoly
  3. CMonopsony
  4. DPerfect competition

Explanation

When two sellers cooperate to fix price and output and share profits, the duopoly is collusive. In the Cournot model the firms act independently, each assuming the rival's output is fixed, so that option is wrong. Monopsony concerns a single buyer.

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