Assume that firms in an oligopoly are currently colluding to set price and output to maximise total industry profit. If the oligopolists are forced to stop colluding, the price charged by the oligopolists will _________ and the total output produced will __________?
Correct answer: C. decrease; increase
- A. decrease; decrease
- B. increase; decrease
- C. decrease; increase
- D. increase; increase
Explanation
Collusion restricts total output and raises the industry price much like a monopoly. Once collusion ends, firms compete more aggressively, causing price to fall and total output to rise.
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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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