Suppose that R. J. Reynolds raises the price of cigarettes by 10 percent. Although they have no requirement or agreement to do so, the other cigarette firms decide to raise their prices accordingly. This situation is best described as:
A) price leadership.
B) a cartel.
C) monopolistic competition.
D) a market with kinked demand.

Question

Quizplus · Accepted Answer

This situation is best described as price leadership, where one firm (in this case, R. J. Reynolds) takes the initiative in changing prices, and other firms in the industry follow suit without any formal agreement.

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