As the number of firms in an oligopoly grows larger, what happens to the quantity produced?
(i) it approaches the socially optimal level
(ii) it increases
(iii) it decreases
A)(i) and (ii)
B)(ii) and (iii)
C)(i) and (iii)
D)(ii) only

Question

Quizplus · Accepted Answer

As the number of firms in an oligopoly grows larger, the firms become more competitive and the market becomes closer to the perfectly competitive market. This means that the quantity produced by each firm will increase, as each firm tries to expand its market share. At the same time, the firms will also approach the socially optimal level of production, as they become more efficient and reduce their production costs. Therefore, both (i) and (ii) are correct. Option (iii) is incorrect, as it implies that the firms will reduce their production as the number of firms increase, which contradicts the logic of competition.

As the Number of Firms in an Oligopoly Grows Larger