Question

Why are firms in a duopoly said to be interdependent?

Options

• Their decisions are fixed and never change

• Each firm’s decisions affect the other firm

• They do not care about each other’s actions

• Government fixes their prices

Answer 1

Each firm’s decisions affect the other firm

Explanation:

In a duopoly, each firm must think about how the rival will react to changes in price, output, or advertising.