The figure illustrates Sally's budget line and her preferences. ...

[Mollykgkg]

The figure illustrates Sally's budget line and her preferences. Point ________ is Sally's best affordable point, and Sally prefers point ________ to point ________.
 
  A) A; B; A
  B) E; C; B
  C) B; A; B
  D) B; B; D

Question 2

What is the dilemma faced by firms in collusive agreement to restrict output and boost price?
 
  What will be an ideal response?

[duy1981999]

Answer to Question 1

C

Answer to Question 2

Because there are just a few large firms in an oligopoly, output and pricing decisions made by one firm affect the demand for other firms' goods. To maximize the total joint profit, the firms must cooperate, act like a monopoly so as to restrict output and earn monopoly profits. Each firm, though, has an incentive to cheat on an agreement to restrict output because if it increases production it can (temporarily, at least) earn higher profits. But if all firms increase production, total profits will fall and the market will move toward the competitive equilibrium.