IBDP Economics

The given question is question 2.(b) from the November 2018 Economics Paper 1. N18/3/ECONO/HP1/ENG/TZ0/XX .  For Question 2. (a), click here . As mentioned in the answer for 2. (a) , oligopolistic firms that collude benefit from higher profits and are more likely to continually earn abnormal profits in the long run too. Collusion grants firms many of the advantages that monopolies gain from as all firms act as one party. Firstly, with higher profits, they can invest in R&D to produce better/ greener technology and increase efficiency of production. This will not only reduce negative externalities in the long run but also increase the firms’ economies of scale. As big firms, oligopolies can benefit from various economies, for instance, managerial (as they hire better managers), purchasing (as they get discounts on bulk buying), financial (lower interest on loans), etc. However, the higher price for products mean that consumers cannot enjoy the benefits of lower costs. Als

The given question is question 2.(a) from the November 2018 Economics Paper 1. N18/3/ECONO/HP1/ENG/TZ0/XX . For Question 2. (b), click here . Oligopolistic firms are a small number of firms which have a relatively large control over the market share. There are two types of oligopoly- collusive and non-collusive. While all firms maximize their profits, they can either compete through price or non-price factors. In a collusive oligopoly, firms may either collude through formal or tacit collusion. In a formal collusion, all the firms reach an agreement on a common price for their products which is generally very high. All the firms may benefit from this agreement, however, some who try to still benefit more may cheat and sell their products at a lower price. For instance, if two firms were originally selling their products and receiving $20M each as profit, then after formally colluding, they could receive a profit of $50M each. In game theory, the following situation can be