Question

1a.

Collusion, particularly in oligopoly industries, sometimes occurs because:

there are only a few firms, so collusion is relatively easy. The few large firms then agree (implicitly or explicitly) to certain price and marketing strategies.

there are many firms in oligopoly industries, so the benefits are great if they collude.

of all of the listed choices are listed.

if firms don't collude, they will not make any profits. A lack of collusion always leads to price wars and losses for firms.

1b.

Let's say that a firm in monopolistic competition incurs a loss in the short run. If losses continue in the long run, then:

some firms will go bankrupt. This decreases supply in the market, raises the market price, and eventually raises the economic profit of the company to zero or above.

this decreases supply in the market, lowers the market price, and eventually eliminates all firms from the market.

this increases supply in the market, lowers the market price, and eventually lowers the economic profit of the company to zero.

this increases supply in the market, raises the market price, and eventually raises the profit to very high levels.

Answer 1

1a. Ans: if firms don't collude, they will not make any profits. A lack of collusion always leads to price wars and losses for firms.

1b. Ans: some firms will go bankrupt. This decreases supply in the market, raises the market price, and eventually raises the economic profit of the company to zero or above.

Explanation:

When firms incur losses in the short run, some firms will exit the industry. This leads to decrease in aggregate supply of the good which in turn leads to increase in equilibrium price and eventually raises the economic profit of the company to zero or above.