Chapter 17 - Oligopoly

Question 1

Duopoly

Answer 1

Simplest form of an oligopoly, has only two firms in the market

Question 1

Collusion

Answer 1

When two firms decide to work together rather than in competition, they can set prices etc.

Question 2

Cartel

Answer 2

Same thing as collusion but with more than two firms

Together they can better themselves, increase production, set prices, etc.

This usually ends up increasing prices for customers.

Question 3

Oligopoly compared to other markets

Answer 3

when firms in an oligopoly individually choose production to maximize profit, they produce a quantity of output greater than the level produced by monopoly and less than the level produced under perfect competition. The oligopoly price is less than the monopoly price but greater than the competitive price (which equals marginal cost).

Question 4

the output affect

Answer 4

because price is above marginal cost, selling one more of a good at the going price will raise profit

Question 5

the price effect

Answer 5

raising production will increase the total amount sold, which will lower the price of the good and lower the profit from all the other goods sold

as the number of sellers in an oligopoly grows, an oligopolistic market increasingly resembles a competitive market. The price approaches marginal cost, and the quantity produced approaches the socially efficient level.