Which of the following statements about the competitive environment is TRUE?
A) In monopolistic competition a seller has a down-sloping demand curve due to the lack of any substitute products.
B) In pure competition, an individual firm is usually faced with a very inelastic demand curve.
C) Firms in oligopoly should avoid price cutting.
D) The industry demand curve in oligopoly is usually horizontal.
E) All of the above.

Question

Quizplus · Accepted Answer

Firms in oligopoly should avoid price cutting because it can trigger a price war with competitors and lead to lower profits for everyone in the industry. In monopolistic competition, sellers have a slightly down-sloping demand curve due to the existence of substitute products. In pure competition, an individual firm is faced with a perfectly elastic demand curve. The industry demand curve in oligopoly is usually downward sloping, not horizontal.

Which of the Following Statements About the Competitive Environment Is