Question

Which feature shows the interdependence of firms in an oligopoly?

Options

• Each firm ignores rivals when fixing price

• Each firm decides price after thinking about rivals’ reactions

• Firms have no effect on each other’s sales

• The government fixes the price for all firms

Answer 1

Each firm decides price after thinking about rivals’ reactions

Explanation:

In oligopoly, each firm’s price and output decisions are affected by rivals, so it must consider how other firms will react before changing price or strategy.