02 May Question: 1a. Collusion, particularly in oligopoly industries, sometimes occurs because: there are only…
1a.
Collusion, particularly in oligopoly industries, sometimes occurs because:
| there are only a few firms, so collusion is relatively easy. The few large firms then agree (implicitly or explicitly) to certain price and marketing strategies. |
| there are many firms in oligopoly industries, so the benefits are great if they collude. |
| of all of the listed choices are listed. |
| if firms don’t collude, they will not make any profits. A lack of collusion always leads to price wars and losses for firms. |
1b.
Let’s say that a firm in monopolistic competition incurs a loss in the short run. If losses continue in the long run, then:
| some firms will go bankrupt. This decreases supply in the market, raises the market price, and eventually raises the economic profit of the company to zero or above. |
| this decreases supply in the market, lowers the market price, and eventually eliminates all firms from the market. |
| this increases supply in the market, lowers the market price, and eventually lowers the economic profit of the company to zero. |
| this increases supply in the market, raises the market price, and eventually raises the profit to very high levels. |
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