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if the oligopolists do not form a cartel - perhaps because competition laws prohibit it - they must each decide on their own how much water to produce.There are two effects to consider.The output effect ; Because price is above marginal cost,selling 1 more at the going price will raise profit.The price effect ; Raising production will increase the total amount sold, which will lower the price and lower the profit on all this is sold.output effect > price effect = increase production until marginal effect balance.price effect > output effect = won't raise production and possibly lower it.Increased competition with more suppliers reduces the price effect keeps prices closer to marginal cost.
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