In an oligopolistic market
A) The more elastic the demand, the greater the markup
B) The larger the number of firms, the greater the markup
C) The less elastic the demand, the greater the markup
D) B and C

Question

Quizplus · Accepted Answer

In an oligopolistic market, firms have some degree of control over the price they charge due to their market power. The markup they can charge depends on the elasticity of demand for their product. If the demand is less elastic, meaning consumers are not very sensitive to changes in price, firms can charge a higher price and earn a greater markup. If the demand is more elastic, firms have to lower the price to attract customers, resulting in a lower markup. The number of firms in the market does not necessarily affect the markup, as long as they have some degree of market power. Therefore, option B is incorrect. Option D is also incorrect because while less elastic demand results in a higher markup, the number of firms does not affect it.

In an Oligopolistic Market