As the number of sellers in an oligopoly increases ?
Correct answer: D. The price in the market moves closer to marginal cost
- A. output in the market tends to fall because each firm must cut back on production
- B. the price in the market moves further from marginal cost
- C. collusion is more likely to occur because a larger number of firms can place pressure on any firm that defects
- D. The price in the market moves closer to marginal cost
Explanation
As more firms enter an oligopoly, competition generally becomes stronger and the market outcome approaches perfect competition. Consequently, price tends to move closer to marginal cost rather than farther away.
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Individual consumers, firms and markets are examined through demand and supply, elasticity, consumer choice, production, costs, revenue and the determination of prices and output. The topic also covers market structures such as perfect competition, monopoly and oligopoly, plus market failure, externalities and the distinction between microeconomic decisions and economy-wide outcomes.
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