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Economic Theory

maximize their profits through collusive action. Instead of independent
price output strategy oligopoly firms prefer group decisions that will
protect the interest of all the firms.
Duopoly. Duopoly is a market situation where there are only two

sellers. Duopoly can be with or without product differentiation. The
important feature of duopoly is that the individual firm has to carefully

consider the indirect effects of its own decision to change its price or
output or both.

ASSIGNMENTS

Review Questions

1. What type of costs do you know?
2. What is the difference between fixed and variable costs? Give two
examples of fixed costs. Give two examples of variable cost.

3. Give two examples each of implicit and explicit costs in a tailoring
shop.
4. If a company reduces a product's price, what does this mean for
their revenue?

5. What is a business doing at the break-even point?
6. What is the difference between revenue and profit?
7. What is meant by market in economics?

8. What is perfect competition? State its main features.
9. Distinguish between perfect competition and monopoly.
10. What is oligopoly? Discuss its characteristic features.

11. What is Monopolistic Competition? How is it different from
perfect competition?
12. How does oligopoly differ from monopolistic competition?

Multiple-Choice Questions

1. A firm sells 10 units at £5 each. Its total costs are £30. How much
profit is made?
a) £50 profit is made;

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