How does the profit maximizing price change in cournot...

How does the profit-maximizing price change in Cournot oligopoly as the number of firms increases? A. It decreases. B. It increases. C. It remains constant. D. It becomes equal to marginal cost. E. It depends on the market elasticity of demand.

Transcript

00:01 So what's an oligopoly? we're told that this industry is characterized by an oligopoly.

00:05 In an oligopolistic industry is an industry where there's a relatively small number of firms, where that number is small enough so that each firm has some market power, right? so we know in peer competition, firms don't have any control over price, and they earn no profit.

00:20 In a monopoly, firms have total control over price.

00:23 In an oligopoly, firms have a little control over price and correspondingly earn a little bit of profit, right? so here we're going to start adding more firms to the oligopoly, right? we're going to push more and more and more in.

00:36 And your intuition should be that a monopoly is one firm and oligopoly is some firms and competition is many firms.

00:44 So adding more firms to the oligopoly pushes us more towards competition.

00:48 But let's work through each of these in turn.

00:52 A, each seller becomes more concerned about its impact on the market price.

00:56 This is wrong because each firm is going to have less.

01:00 Control, right? as more and more and more firms enter the market, there's going to be more and more competition.

01:06 More and more people are going to be fighting for market share.

01:09 Each firm is going to have less and less and less control.

01:12 The monopolist has ultimate control over the market price...

Question

How does the profit-maximizing price change in Cournot oligopoly as the number of firms increases? A. It decreases. B. It increases. C. It remains constant. D. It becomes equal to marginal cost. E. It depends on the market elasticity of demand.

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