The mutual interdependence of oligopolists ensures that each oligopolist has
A) a unique demand curve.
B) a perfectly elastic demand curve.
C) a reaction function.
D) a fundamental dilemma about whether to collude or not.

Question

Quizplus · Accepted Answer

The mutual interdependence of oligopolists means that each firm adjusts their output and pricing decisions in response to their competitors' actions. This leads to the development of reaction functions which illustrate how a firm's optimal output level changes as a result of changes in its competitor's output. Therefore, Option C is the correct answer. Option A is incorrect because the demand curve of an oligopolist depends on the actions of all firms in the market, not just the individual firm. Option B is incorrect because perfect elasticity of demand would imply that consumers are completely insensitive to price changes, which is not typically the case in an oligopoly. Option D is incorrect because the fundamental dilemma faced by oligopolists is whether to collude and behave like a monopoly or compete aggressively and risk triggering a price war.

The Mutual Interdependence of Oligopolists Ensures That Each Oligopolist Has