As the number of firms in an oligopoly increases, the magnitude of the
A)output effect increases.
B)output effect decreases.
C)price effect increases.
D)price effect decreases.

Question

Quizplus · Accepted Answer

As the number of firms in an oligopoly increases, the competition among firms increases which leads to a decrease in the market power of each firm. This decrease in market power results in a decrease in the magnitude of the price effect because each firm can no longer affect the market price as much. Therefore, the correct choice is D, the price effect decreases.

As the Number of Firms in an Oligopoly Increases, the Magnitude