What is the dilemma faced by firms in oligopoly?
What will be an ideal response?
Because there are just a few large firms in an oligopoly, output and pricing decisions made by one firm affect the demand for other firms' goods. To maximize the total joint profit, the firms must cooperate, act like a monopoly so as to restrict output and earn monopoly profits. But each firm has an incentive to cheat on an agreement to restrict output because if it increases production it can (temporarily, at least) earn higher profits. But if all firms increase production, total profits will fall and the market will move toward the competitive equilibrium.
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A compulsory payment to government that is generally linked to engaging in some activity is referred to as a
A) tax. B) subsidy. C) deadweight loss. D) quota.
Price ceilings which lead to shortages will impose costs on society because they
A. will lead to long waiting lines B. may result in black market prices, which are higher than the market-determined price would be. C. lead to a smaller quantity offered on the market. D. do all of the above.