Oligopolies are able to avoid price competition while maintaining supernormal profits in the long run. Evaluate this statement.
Exam No：9708_m25_qp_42 Year：2025 Question No：2
Answer:
Knowledge points:
7.5.10 calculation of supernormal and subnormal profit
7.5.9 definition of normal, subnormal and supernormal profit
7.6.1 perfect competition and imperfect competition: monopoly, monopolistic competition, oligopoly, natural monopoly
7.6.2 structure of the listed markets as explained by number of buyers and sellers, product differentiation, degree of freedom of entry and availability of information
7.6.3.1 legal barriers
7.6.3.2 market barriers
7.6.3.3 cost barriers
7.6.3.4 physical barriers
7.6.4.1 revenues and revenue curves
7.6.4.2 output in the short run and the long run
7.6.4.3 profits in the short run and the long run
7.6.4.4 shutdown price in the short run and the long run
7.6.4.5 derivation of a firm’s supply curve in a perfectly competitive market
7.6.4.6 efficiency and X-inefficiency in the short run and the long run
7.6.4.7 contestable markets: features and implications
7.6.4.8 price competition and non-price competition
7.6.4.9 collusion and the Prisoner’s Dilemma in oligopolistic markets, including a two-player pay-off matrix
7.8.1 traditional profit-maximising objective of firms
7.8.2.1 survival
7.8.2.2 profit satisficing
7.8.2.3 sales maximisation
7.8.2.4 revenue maximisation
Solution:
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