Suppose an oligopolist individually maximizes its profits. When calculating profits, if the output effect exceeds the price effect on the marginal unit of production, then the oligopolist ?
Correct answer: A. Should produce more units
- A. Should produce more units
- B. has maximized profits.
- C. is in a Nash equilibrium
- D. Should produce fewer units
- E. should exit the industry.
Explanation
The output effect is the gain from selling one more unit, while the price effect is the loss from lowering the price on existing units. If the output effect is larger, the marginal gain is positive and the firm should expand production.
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