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If the output effect from increased production is larger than the price effect, then an oligopolist would increase production.
If the output effect from increased production is larger than the price effect, then an oligopolist would increase production. a.true
b.false
Final answer:The statement is true. An oligopolist will increase production if the revenue generated from the output effect exceeds the losses from the price effect. However, they must consider potential competitive responses that might reduce expected profits.Explanation:If theoutput effectfrom increased production is larger than the price effect, then an oligopolist would increase production. This statement is true. When a firm in an oligopoly market structure increases its quantity produced, there are two effects to consider: the output effect and the price effect. The output effect pertains to the additional revenue generated from selling more units at the market price, represented by area B. On the other hand, the price effect relates to the loss in revenue from lowering the price on all units sold, indicated by area A. If the benefit of selling an additional unit, which is the output effect (AQ × P1), overshadows the loss incurred from reducing prices on all units sold due to increased production, which is the price effect (AP × Qo), the firm has an incentive to produce more.However, the oligopolist must be wary of how its competitors respond to changes in production levels. If the market sees an overall increase in production from other firms reacting to one firm's decisions, the price may fall more than initially expected, potentially leading to less profit than anticipated....