Question

To move the allocation of resources closer to the social optimum, policymakers should typically try to induce firms in an oligopoly toA. collude with each other.B. form various degrees of cartels.C. cooperate rather than compete with each other.D. compete rather than cooperate with each other.

Answer 1

Answer: D. compete rather than cooperate with each other

Explanation: Oligopoly is a market form in which a particular market or industry is dominated by a few numbers of large sellers. Social optimum or socially optimal output is achieved when output occurs at the intersection of marginal social benefit and marginal social cost.

In order to achieve this, firms in oligopoly should be encouraged to compete rather than cooperate against each other so as to keep the price competitive and move the allocation of resources closer to the social optimum.