In an oligopolistic market, each firm
A) has a constant marginal cost.
B) faces a perfectly elastic demand function.
C) must consider the reaction of rival firms when making a pricing or output decision.
D) produces at minimum average cost in the long run.

Question

Quizplus · Accepted Answer

In an oligopolistic market, firms must consider the reaction of rival firms when making a pricing or output decision. This is because there are only a few firms in the market, and their actions can significantly impact the market dynamics. This is different from a perfectly competitive market, where firms can act independent of each other. Hence, option C is the correct answer.

Option A is incorrect because firms in an oligopolistic market may have varying marginal costs due to differences in production methods, technology, etc. Option B is incorrect because the demand curve faced by firms in an oligopolistic market is not perfectly elastic, as the market is characterized by significant market power. Option D is also incorrect because firms in an oligopolistic market may not produce at minimum average cost in the long run due to factors such as barriers to entry, product differentiation, and strategic behavior.

In an Oligopolistic Market, Each Firm