Describe the output and price effects that influence the profit-maximizing decis

Question

Describe the output and price effects that influence the profit-maximizing decision faced by a firm in an oligopoly market. How does this differ from output and price effects in a monopoly market?

Explanation / Answer

Here is my reasoning: Output effect: Price > Marginal cost => increased output will add to profit Price effect: increased quantity is sold at a lower price => lower revenue (profit?) An oligopolist must take into account how the output and price effects will be influenced by competitors' production decisions, or it must assume competitors' production will not change in response to its own actions.

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