Mutual interdependence means that:
A) product differentiation exists,that is,firms produce close substitutes but not identical products.
B) each seller faces a completely inelastic demand curve.
C) each firm must consider the possible reactions of rivals when establishing price policy.
D) when a pure monopolist chooses a price,it also necessarily chooses some specific level of output.

Question

Quizplus · Accepted Answer

Mutual interdependence refers to the fact that a firm's decisions are influenced by the possible reactions of its rivals. In other words, firms must consider how their competitors will react when setting their own prices or making other strategic decisions. This is a fundamental element of oligopolistic markets, where a small number of firms control a significant portion of the market. Option A refers to product differentiation, which is a characteristic of monopolistically competitive markets rather than oligopolistic ones. Option B refers to a situation where demand is perfectly inelastic, which is rare in the real world. Option D refers to a monopolist's pricing strategy, which is not directly related to mutual interdependence.

Mutual Interdependence Means That