Question

An oligopolist will increase production if the output effect is:_____.

a. less than the price effect.
b. equal to the price effect.
c. greater than the price effect.
d. The oligopolist never has an incentive to increase production.

Answer 1

c. greater than the price effect.

Step-by-step explanation:

The output effect represents higher revenue due to a larger quantity supplied, while the price effect results in lower revenue due to an decrease in price resulting from an increase in quantity supplied. As the quantity supplied increases, the equilibrium price decreases. A firm will sell more units if the output effect is higher and offsets the price effect.