which is the correct answer and why? thank you :) 26. Which of the following mak
ID: 1116493 • Letter: W
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which is the correct answer and why? thank you :)
26. Which of the following makes collusion amongst oligopolists easier to sustain? In other words, which of the following makes it more likely for oligopolists to reach the cartel outcome (relative to the competitive outcome)? al The abilitv the firms to observe each other's outcomes (e quantities) b) An increase in the number of firms in the market c) A reduction in barriers to entry in the market d) None of the above factors makes collusion easier to sustain.Explanation / Answer
The oligopoly market can be defined as those market structure in the economy, in which two or few firms supply goods in the whole market.
If there more firms are entering the market, then two or few firms may collude and capture the whole market and creates barriers for the new firms, so that new firm could not enter in the market. This formation is called the cartel.
If there is an increase in the number of firms in the markets, then the profit of the existing firms decreases because of their market share decrease. Therefore the big existing firms merge with each other and create barriers by reducing the prices of the goods so that new firm cannot stand in the market. Therefore by forming cartel big firms can earn maximum profit compared to if they compete with each other.
If there is a reduction in the barriers for entering in the markets, the new firm can enter the market and reduce the market share of the existing firms. Therefore the big existing firms merge with each other and create barriers by reducing the prices of the goods so that new firm cannot stand in the market.Therefore by forming cartel big firms can earn maximum profit compared to if they compete with each other.
Therefore option b and c are the correct answer.
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