CFA Practice Question

There are 539 practice questions for this study session.

CFA Practice Question

A profit-maximizing oligopolist will typically set price ______.
A. at the intersection of marginal cost and demand curves
B. at the intersection of average total cost and demand curves
C. higher than the purely competitive level but lower than the level that would maximize the industry's profits
Explanation: By setting price below the point dictated by the cartel (i.e., the point that maximizes joint cartel profits), the firm can cheat on the collusive agreement and earn higher profits. The firm will not set the price equal to the competitive level because that would imply zero economic profits, which the firm is hoping to exceed.

User Contributed Comments 4

User Comment
cbb1 In theory, the oligopolist (as a group) would set profits to maximize industry profits, but an individual oligopolist would set his profits lower than the cartel price to maximize his profits (increase his share vis-a-vis the other members of the cartel).
george2006 differentiate between oligopolistic industry and individual firm.
MylesGrenier Where does the question reference that it is a cartel? Is a profit maximizing oligopilist always assumed to be part of a cartel?
davcer remember you have the prisoner dilemma in oligopoly mkt
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