Does an oligopoly produce the efficient quantity of output or ...

[Sportsfan2111]

Does an oligopoly produce the efficient quantity of output or does it create a deadweight loss? Do the firms want to produce the efficient quantity of output? Explain your answer.
 
  What will be an ideal response?

Question 2

In the figure above, if information technologies are introduced that are complements for high-skilled workers and substitutes for low-skilled workers, the wage rate of high-skilled workers will ________ and the wage rate of low-skilled workers will
 
  ________. A) rise; fall
  B) fall; rise
  C) fall; fall
  D) rise; rise

[DHRUVSHAH]

Answer to Question 1

An oligopoly might or might not produce the efficient quantity of output. It produces the efficient quantity if the firms cheat on any agreement to collude by increasing their output so that it winds up the same as the perfectly competitive amount. In this case, price equals marginal cost and the outcome is efficient. There is no deadweight loss. From the firms' perspectives, this outcome is undesirable because the firms make zero economic profit, that is, only a normal profit.
If the firms can play repeated games, detecting and punishing overproduction, the oligopoly is more likely to restrict output to the monopoly level. This outcome is inefficient because marginal cost does not equal marginal benefit. A deadweight loss is created. From the firms' perspective, this outcome is more desirable because the firms make an economic profit.
The firms' goal is to maximize their economic profit. Because their profit is higher if they successfully collude and limit their production, the firms do not want to produce the efficient quantity of output.

Answer to Question 2

A

[Sportsfan2111]

Correct answers!

[DHRUVSHAH]

Great! Please up vote