The figure given below represents the total output and price produced in an oligopoly market characterized by a dominant firm and a fringe.SF represents the supply curve of the fringe, D is the market demand curve, DRES represents the residual demand curve of the dominant firm, MRRES represents the residual marginal revenue curve of the dominant firm, and MCD represents the marginal cost of the dominant firm.

-Refer to Figure .If the market demand curve D rotates outward (while its vertical intercept remains unchanged), which of the following changes will be observed in the oligopoly market?
A)The fringe's market share will decline
B)The dominant firm's profits will decrease
C)The marginal cost will decrease
D)The overall market price will decline

Question

The figure given below represents the total output and price produced in an oligopoly market characterized by a dominant firm and a fringe.SF represents the supply curve of the fringe, D is the market demand curve, DRES represents the residual demand curve of the dominant firm, MRRES represents the residual marginal revenue curve of the dominant firm, and MCD represents the marginal cost of the dominant firm.

-Refer to Figure .If the market demand curve D rotates outward (while its vertical intercept remains unchanged) , which of the following changes will be observed in the oligopoly market?

-Refer to Figure .If the market demand curve D rotates outward (while its vertical intercept remains unchanged), which of the following changes will be observed in the oligopoly market?
A)The fringe's market share will decline 
B)The dominant firm's profits will decrease 
C)The marginal cost will decrease 
D)The overall market price will decline

Quizplus · Accepted Answer

When the market demand curve D rotates outward, the overall market price will decline as the dominant firm will have to lower its price to retain its market share. The fringe's market share may increase as they can also sell more at the lower market price. The dominant firm's profits may decrease due to the lower price and increased competition, but this cannot be stated with certainty. The marginal cost of the dominant firm and other firms in the market is not affected by the rotation of the market demand curve.

The Figure Given Below Represents the Total Output and Price