Suppose a market is initially perfectly competitive with many firms selling an identical product. Over time, however, suppose the merging of firms results in the market being served by only three or four firms selling this same product. As a result, we would expect
A)an increase in market output and an increase in the price of the product.
B)an increase in market output and an decrease in the price of the product.
C)a decrease in market output and an increase in the price of the product.
D)a decrease in market output and a decrease in the price of the product.

Question

Quizplus · Accepted Answer

When a market transitions from being perfectly competitive to being dominated by only a few firms (oligopoly), it typically results in a decrease in market output and an increase in the price of the product. This is because the few firms have more market power and can restrict output to raise prices.

Suppose a Market Is Initially Perfectly Competitive with Many Firms