CFA Practice Question

CFA Practice Question

In an oligopoly,
A. if there is successful collusion, firms will set marginal cost equal to marginal revenue and earn excess profits.
B. if there is successful collusion, firms will set marginal cost equal to price and earn excess profits.
C. if there is no collusion, firms will set long run average total cost equal to marginal revenue and earn zero profits.
Explanation: In an oligopoly, the long run average total cost curve also serves as the marginal cost curve as it remains flat over a broad range of output. Under successful collusion, firms set marginal cost equal to marginal revenue and earn excess economic profits.

User Contributed Comments 2

User Comment
Kashi2010 If marginal revenue = price, can some please explain how A & B are any different?!
jsubhen price = Average Revenue
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