Which of the following statements about oligopoly is FALSE: A. Oligopolies have a tendency to collude and form cartels in order to split monopoly like profits B. Oligopolistic markets under collusion are socially inefficient (create deadweight loss) C. If two firms are in a collusion and Firm 1 violates the agreement by lowering the price, Firm 1 will increase its own profit but overall profit in the industry will go down D. All of the above statements are true

D. All of the above statements are true

Explanation:

Oligopolies exist in markets where supply is not saturated so they tend to form cartels where they can collude and charge a higher price to consumers so as to make more profits. Like a monopoly, this would lead to a deadweight loss because the urge to be competitive goes away and the market becomes socially inefficient.

In such a market, some firms will be tempted to break the cartel agreement and charge a lower price so as to gain market share. They stand a good chance of doing so in the short term but the other companies will react by reducing their prices as well which would reduce profits for the whole industry.