Exhibit 10-14
-Which of the curves shown in Exhibit 10-14 best represents the long-run average cost curve for an oligopolist?

Question

Exhibit 10-14 -Which of the curves shown in Exhibit 10-14 best represents the long-run average cost curve for an oligopolist?

Quizplus · Accepted Answer

In an oligopoly, firms have some market power and face a downward-sloping demand curve for their products. As a result, they may be able to charge a price above the minimum of their average cost curve to earn positive economic profits in the short run. Since oligopolists have some market power, they can also invest in research and development, advertising, and other strategies to reduce their long-run average cost (LRAC) curve. The LRAC curve is generally U-shaped due to economies and diseconomies of scale. In Exhibit 10-14, curve D is the only U-shaped curve, which represents the long-run average cost curve of an oligopolist. Curve A is the LRAC for a firm in a perfectly competitive market, while Curve E is the LRAC of a monopolist, and curves B and C do not resemble any typical LRAC.

Exhibit 10-14 -Which of the Curves Shown in Exhibit 10-14 Best Represents