Question

Assess the economic desirability of collusive pricing.

1) Collusive pricing is not economically desirable from society's viewpoint because price equals average total cost.
2) Collusive pricing is economically desirable from society's viewpoint because it is a capital drain.
3) Collusive pricing is economically desirable from the oligopoly's viewpoint because it results in monopoly profits.
4) Collusive pricing is not economically desirable from the oligopoly's viewpoint because it cannot control entry.

Answer 1

Collusive pricing has economic advantages and disadvantages. It is not economically desirable from society's viewpoint due to higher prices, but is desirable for oligopolies in terms of monopoly profits. Collusive pricing may be undesirable for oligopolies if they cannot control entry.

Step-by-step explanation:

Collusive pricing, which occurs when oligopoly firms act together to reduce output and keep prices high, has both economic advantages and disadvantages. From society's viewpoint, collusive pricing is not economically desirable because it leads to higher prices, reducing consumer welfare. However, from the oligopoly's viewpoint, collusive pricing can be economically desirable as it allows the firms to earn monopoly profits. In contrast, collusive pricing may not be economically desirable for the oligopoly if it cannot effectively prevent new firms from entering the market.