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    Question

    In an oligopoly, firms consider the reactions of rival

    firms before changing their output or price. This is known as:
    A Strategic interdependence Correct Answer Incorrect Answer
    B Price leadership Correct Answer Incorrect Answer
    C Collusion Correct Answer Incorrect Answer
    D Kinked demand Correct Answer Incorrect Answer

    Solution

    Solution: Oligopoly markets are characterized by few large firms, so each firm’s decisions affect others. Because of this, firms anticipate reactions of rivals before making pricing or output decisions. This behavior is called strategic interdependence. Price leadership and collusion are specific strategies within oligopoly.

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