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Economics A Level (DONEEEEEEE)

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Question:

Why can Collusive Behaviour in an Oligopolistic Market lead to Results similar to Monopolies?

Author: eric_galvao



Answer:

-Collusive Oligopolies can create High Prices and Low Output (Underconsumption) and Allocative and Productive Inefficiency. They have the Resources to invest, Increasing Dynamic Efficiency, but there is not an Incentive. Thus, Market Failure is here -Because the Firms do not Lower Prices, they make Supernormal profits -How it works is that the Industry will agree to Max Profits so will Produce to the Point where MC=MR. Each Firm part of the Collusion has a Quota to Reach. Usually, Supernormal Profit is made.


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