In oligopolies, the government might influence market outcomes by:

• A. requiring firms to merge and form a single producer
• B. eliminating all barriers to entry to create a monopoly
• C. setting output quotas to encourage price wars
• D. regulating prices to prevent collusion among firms

Answer: (D)

Verified step by step guidance

1. Understand the nature of oligopolies: Oligopolies are markets dominated by a few firms, where each firm's decisions affect the others, often leading to strategic behavior such as collusion.
2. Recognize the government's role in oligopolies: Governments may intervene to promote competition and prevent anti-competitive practices like collusion, which can lead to higher prices and reduced consumer welfare.
3. Evaluate the options given: Merging firms into a single producer creates a monopoly, which is generally not the goal; eliminating barriers to entry to create a monopoly is contradictory since barriers prevent entry; setting output quotas to encourage price wars is unlikely as quotas typically restrict output.
4. Identify the correct intervention: Regulating prices to prevent collusion helps maintain competitive pricing and prevents firms from coordinating to keep prices artificially high.
5. Summarize the key point: Government regulation in oligopolies often focuses on preventing collusion and promoting competition, typically through price regulation or antitrust laws.