a. Price collusion occurs in oligopolistic industries because
price competition can lower revenue for all Sms
price competition results in economies of scale.
costs are similar among firms
price competition results in diseconomies of scale
b. Assess the economic desirability of collusive pricing
Collusive pricing is not economically desirable from the oligopoly's viewpoint because it cannot control entry
Collusive pricing is economically desirable from society's viewpoint because it is a capital drain
Collusive pricing is not economically desirable from society's viewpoint because price equals average total cost
Collusive pricing is economically desirable from the oligopoly's viewpoint because it results in monopoly profits.
c. Price leadership is legal in the United States, whereas price-fixing is not. This is because price leadership is
not an agreement, whereas price-fixing is.
a registered arrangement subject to oversight, whereas price-fixing is not
not a registered arrangement subject to oversight, whereas price-fixing is.
an agreement, whereas price-fixing is not.
Homework Answers
ANSWER A - ( A ) Price competition can lower revenue for all firms .
Because they allow the producer in the market to earn or make economic profit , where as the economic profits get removed when there is a price competition in the absence of collusion . So, the price competition can lower revenue for all firms .
ANSWER B - ( D ) Collusive pricing is economically desirable from the oligopoly's viewpoint because it results in monopoly profit .
ANSWER C - ( A ) Not an agreement , whereas price - fixing is .
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