Examplesupposethereexists2gasstationsinasmalltown

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Unformatted text preview: to solution. When all firms price high, the Oligopoly as a whole will make the highest profit. – However, when looking at society as a whole, Oligopolies who co­operate cause a DWL. If firms are acting like a monopolist, quantity supplied is too low and price is too high, and there exists a DWL; just like in a monopoly. 7 Actions for Firms: Act Independently If firms choose not to collude, they must guess and react for how others are going to act. Example: Suppose there exists 2 gas stations in a small town. You are the owner of one of them. – You decide to decrease your price to increase the amount of gas you sell and your profit. – Then in response the other station decreases their price more to sell more gas than y...
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