Oligopolies are not considered a desirable market structure because they tend to achieve which of the following outcomes?

• A. higher prices and lower output compared to perfect competition
• B. zero economic profits in the long run
• C. perfect information and no barriers to entry
• D. maximum consumer surplus and efficient allocation of resources

Answer: (A)

Verified step by step guidance

1. Step 1: Understand the characteristics of an oligopoly market structure. Oligopolies consist of a few firms that dominate the market, often leading to strategic interactions among them.
2. Step 2: Recall that in perfect competition, many firms produce identical products, leading to prices equal to marginal cost, maximizing consumer surplus and efficient resource allocation.
3. Step 3: Recognize that oligopolies have barriers to entry and firms have some market power, which allows them to set prices above marginal cost.
4. Step 4: Analyze the typical outcomes of oligopolies: because firms can restrict output to keep prices high, this results in higher prices and lower output compared to perfect competition.
5. Step 5: Conclude that these outcomes reduce consumer surplus and lead to inefficiencies, which is why oligopolies are generally considered undesirable compared to perfectly competitive markets.