The figure above shows the market demand curve for a market with three firms. It also shows a firm's marginal cost curve. In this oligopoly, what is the range of output and prices? Why does this range of outcomes exist?
What will be an ideal response?
If the firms operate as a monopoly, they produce a total of 200 units per day and set a price of $12 per unit. If the firms compete and operate as perfect competitors, they produce 400 units per day and the price is $4 per unit. The range of possible outcomes exists because firms in oligopoly have the choice of colluding to decrease output to monopoly levels or cheating on the cartel and increase output to its efficient level. A range of prices also exists between the monopoly price and the perfectly competitive price.
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A monopoly will NOT be able to perfectly price discriminate if
A) each consumer does not reveal her reservation price. B) demand is very elastic. C) the firm's marginal cost curve is upward sloping. D) All of the above.
A reduction in a country's rate of inflation should
A) increase its imports. B) increase its exports. C) lead to a negative trade balance. D) lead to an outflow of SDRs.