Question

Oligopolists are allocatively and productively inefficient in the markets because ________.

a) they typically operate at a level of output where price is greater than marginal cost and do not produce at the minimum point on their average cost curves.

b) they typically operate at a level of output where price is less than marginal cost and do not produce at the minimum point on their average cost curves.

c) they typically operate at a level of output where price is greater than marginal cost and do produce at the minimum point on their average cost curves.

Answer 1

Answer. (a) they typically operate at a level of output where price is greater than marginal cost and do not produce at the minimum point on their average cost curves.

Explanation: Oligopolists produce where marginal cost and marginal revenue curves intersect. Then a vertical line from the quantity to the demand curve gives the price of the product. Thus the price is always greater than the marginal cost. Also, the intersection of marginal cost and marginal revenue is before the minimum point of average cost curve, thus resulting in non-optimal production.

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