When a market is characterized by mutual interdependence
A) one firm's pricing decision does not affect the market share of any other firm.
B) one firm's quantity decision does not affect the market share of any other firm.
C) all firms always act in unison to produce the monopoly quantity.
D) the actions of one firm have an impact on the price and output of its competitors.
E) the actions of one firm have no impact on the price and output decisions of its competitors.

Question

Quizplus · Accepted Answer

In a market characterized by mutual interdependence, the actions of one firm have an impact on the price and output of its competitors. Each firm must take into consideration the likely responses of its competitors when making pricing and output decisions. Therefore, firms in such a market must compete strategically, anticipating and responding to the actions of their competitors.

When a Market Is Characterized by Mutual Interdependence