explain the output effect and the price effect for an oligopoly Solution We know

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We know that P>MC for an oligopoly the output effect is that selling one more unit at the sales price will increase profit. The price effect is that an increase in production will increase the total amount sold, which will decrease the price and decrease the profit on all other units sold. If the output effect is greater than the price effect, the owner will increase production. If the price effect is greater than the output effect, the owner will not increase production (and may even decrease production). Hence Oligopolists will continue to increase or decrease production until these marginal effects balance.

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