The Sweezy model of oligopoly reveals that:
A) capacity constraints are not important in determining market performance.
B) perfectly competitive prices can arise in markets with only a few firms.
C) changes in marginal cost may not affect prices.
D) All of the statements associated with this question are correct.

Question

Quizplus · Accepted Answer

The Sweezy model of oligopoly highlights the possibility that changes in marginal cost may not impact prices. This is because firms in an oligopoly are interdependent and must consider the reactions of their competitors in setting prices. Therefore, even if marginal costs decrease, firms may not lower prices if they fear a price war and retaliation from their competitors. The other options, A and B, are not correct as the Sweezy model does recognize the importance of capacity constraints and does not suggest that perfectly competitive prices can arise in an oligopoly market.

The Sweezy Model of Oligopoly Reveals That