Assume that there is an oligopoly consisting of firms of different sizes. If a small firm increases output by 25%, the price effect realized by the small firm will be only _________. If a large firm increases output by 25%, the price effect realized by the large firm will be _________.

Question

Quizplus · Accepted Answer

In an oligopoly, firms are interdependent and their actions affect the market outcomes. When a small firm increases output by 25%, the price effect is likely to be negligible as the firm's market share and impact on total output is relatively small. On the other hand, when a large firm increases output by 25%, the price effect could be substantial as the firm's market share and impact on total output is significant. Therefore, the correct answer is E, which states that the price effect realized by the large firm will be substantial while the price effect realized by the small firm will be negligible.

Assume That There Is an Oligopoly Consisting of Firms of Different