Given an oligopolistic industry characterized by a collusive agreement and constant unit costs of production, which of the following statements is true?
A)As the number of firms expands, the incentive to cheat on the collusive agreement increases.
B)As the number of firms falls, aggregate output falls and aggregate profit rises.
C)As the aggregate output rises, aggregate profit does not change.
D)As the number of firms expands, aggregate output rises and aggregate profit falls.

Question

Quizplus · Accepted Answer

As the number of firms expands, the incentive to cheat on the collusive agreement increases. This is because with more firms in the industry, the effect of any single firm cheating on the agreement is diluted, and the temptation to increase profits by producing at a higher level than agreed upon becomes stronger.

Given an Oligopolistic Industry Characterized by a Collusive Agreement and Constant