What happens to the market price as the number of sellers in an oligopoly grows?

Multiple choice question for Oligopoly. Select an option, then review the explanation below.

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The total production decreases since each company reduces its output.Market prices deviate more from the marginal cost.Collaboration becomes easier because more firms can enforce discipline on any deviating member.The market price tends to approach the marginal cost.There is no change in the price or output levels.

Explanation

As more firms enter an oligopoly, competition intensifies, pushing the market price closer to the marginal cost. This happens because increased competition reduces the market power of individual firms, limiting their ability to keep prices above marginal cost.

Practice related questions from the same subject.

1.Which concept in game theory is commonly used to analyze oligopoly behavior?
2.ABC Publishing offers an economics textbook along with a study guide. Raheel values the textbook at Rs 75 and the study guide at Rs 15, while Mariam values the textbook at Rs 60 and the study guide at Rs 25. Assuming the marginal cost of producing both items is zero, what combined price should ABC Publishing set when pricing the textbook and study guide separately to maximize revenue?
3.What do many economists believe is the valid reason behind resale price maintenance?
4.When an oligopolist independently determines its production quantity to maximize profits, how does its output compare to that of a monopoly and a perfectly competitive market?
5.If an oligopolist aims to maximize profits and finds that the output effect on the marginal unit is greater than the price effect, what action should the firm take?

What happens to the market price as the number of sellers in an oligopoly grows?

Explanation

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