In an oligopoly, each firm knows that its profits
A)depend only on how much output it produces.
B)depend only on how much output its rival firms produce.
C)depend on both how much output it produces and how much output its rival firms produce.
D)will be zero in the long run because of free entry.

Question

Quizplus · Accepted Answer

In an oligopoly, each firm's profits depend on both how much output it produces and how much output its rival firms produce. This is because each firm must consider not only their own production decisions but also the potential reactions of their competitors. If a firm produces too much output, it may trigger a price war or lose market share to competitors. Similarly, if a firm produces too little output, it may miss out on potential profits or lose customers to competitors who can better meet demand. Therefore, firms must consider the actions of their rivals when making production decisions.

In an Oligopoly, Each Firm Knows That Its Profits