In an oligopoly, producers' agreements to restrict output tend to be unstable because each firm has an incentive to rev: A. produce more than its output quota. B. lower both its price and its output. C. raise its price above the cooperative price. D. establish competitive price and output levels.

Question

Jaxson Swanson

Business

16 May, 17:31

In an oligopoly, producers' agreements to restrict output tend to be unstable because each firm has an incentive to rev: A. produce more than its output quota. B. lower both its price and its output. C. raise its price above the cooperative price. D. establish competitive price and output levels.

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Answers (1)

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Delacruz · Answer 1

The correct answer is option A.

Explanation:

In an oligopoly market there are a small number of firms, who are interdependent on each other. The price and output of each firm affects the other firms. There is high degree of competition.

In this situation, producer's agreement to restrict output tends to be unstable. Each firms wants to earn more profits. Profits can be increased by reducing costs and increasing revenue.

So, each firm will have an incentive to produce more than its output quota, in order to earn higher profits.