Multiple Choice
Which of the following is a unique feature of an oligopolistic industry?
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14. Oligopoly
Characteristics of Oligopoly
Multiple Choice
What is collusion, and why is it often illegal?
A
Collusion is a legal joint venture where firms merge assets to lower costs; it is often illegal because it reduces firms' ability to innovate.
B
Collusion is when firms independently adopt similar pricing strategies due to market conditions; it is often illegal because it burdens small firms.
C
Collusion is a government-approved agreement to stabilize markets during crises; it is often illegal because it conflicts with free-market principles.
D
Collusion is an agreement among firms to coordinate prices, outputs, or market shares to reduce competition and increase joint profits; it is often illegal because it raises consumer prices and violates antitrust laws.
Verified step by step guidance1
Step 1: Understand the definition of collusion in microeconomics. Collusion occurs when firms in the same industry agree to coordinate their actions, such as setting prices, limiting output, or dividing markets, rather than competing independently.
Step 2: Recognize the purpose behind collusion. Firms collude to reduce competition among themselves, which allows them to increase their joint profits by acting like a monopoly or cartel.
Step 3: Identify the effects of collusion on the market. By coordinating, firms can raise prices above competitive levels, reduce output, and limit choices for consumers, which leads to inefficiencies in the market.
Step 4: Understand why collusion is often illegal. Most countries have antitrust or competition laws designed to promote fair competition. Collusion violates these laws because it harms consumers by increasing prices and reducing market competition.
Step 5: Summarize the key points: Collusion is an agreement among firms to coordinate prices, outputs, or market shares to reduce competition and increase joint profits; it is often illegal because it raises consumer prices and violates antitrust laws.
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