Question

Successful pricing collusion between firms in oligopoly (think “airlines”) tends to result in

a) higher volumes of output and lower prices for consumers.

b) lower volumes of output and lower prices for consumers.

c) lower volumes of output and higher prices for consumers.
d) higher volumes of output and higher prices for consumers.

Answer 1

C. lower volumes of output and higher prices for consumers.

Explanation:

When two oligopoly firms collude, they act as a multi plant monopolist, where productions are are made in different firms but the the price is set jointly and products are sold.  

We know that, a monopolist produces the lowest volume of output and charge highest price to consumers. When we compare with firms in oligopoly, a monopolist produces the lower volume of output and charge higher price to the consumers.

Hence, after a successful collusion, the volume of output will be lower and price will be higher.