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Principles of Microeconomics

7th Edition
N. Gregory Mankiw
ISBN: 9781305156050

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BuyFindarrow_forward

Principles of Microeconomics

7th Edition
N. Gregory Mankiw
ISBN: 9781305156050
Textbook Problem

If an oligopoly does not cooperate and each firm chooses its own quantity, the industry will produce a quantity of output that is ___________ the _______ competitive level and _______ the ___________ monopoly level.

a. less than, more than

b. more than, less than

c. less than, equal to

d. equal to, more than

To determine
Relevance of cartel.

Explanation

Option (a):

When a cartel is formed, the market is just like a monopoly, and the member firms will agree on the monopoly outcome because that outcome maximizes the total profit of each member firm. If an oligopoly does not co-operate with each other, and each firm chooses its own quantity, then the industry will produce a quantity of output that is less than the competitive level and more than the monopoly level. Thus, the option “a” is correct.

Option (b):

The oligopoly produces the total outcome that is less than that of competitive markets but sells that product at a higher rate than in the competitive market...

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