Chapter 64, Problem 4MCQ

To determine

To state: The reason why oligopolists are tempted to produce more than the quantity that would maximize industry profits, is when they increase output.

Answer to Problem 4MCQ

The correct option is e, i.e., the price effect is spread across multiple firms.

Explanation of Solution

Oligopolists are attracted to produce extra than the quantity that would maximize industry profits, as when they rise output, the price effect is spread across several firms.

An oligopoly is defined as a market structure in which a market or an industry is controlled by a small number of large sellers or producers. They are often interdependent in their output and pricing policies. These are an outcome of the aspiration to maximize profits, usually resulting in collusion between companies.