Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
They ignore the price change and maintain their prices.
B
They all increase their prices to maintain profit margins.
C
They may follow the price change or change their output levels.
D
They immediately decrease their prices to undercut the competitor.
Understanding the Answer
Let's break down why this is correct
Answer
In an oligopolistic market, a few large firms dominate, and they closely watch each other's actions. When one firm changes its price, others often respond quickly because they want to remain competitive. For example, if a car manufacturer lowers its prices, other manufacturers might follow suit to keep their sales from dropping. This reaction happens because firms know that if they don’t adjust their prices, they risk losing customers to the company that lowered its price. Therefore, price changes in an oligopoly can lead to a chain reaction, affecting the overall market pricing and competition.
Detailed Explanation
In an oligopoly, firms watch each other closely. Other options are incorrect because Some might think firms can just ignore price changes; It's a common belief that all firms will raise prices together.
Key Concepts
oligopoly
market signals
Topic
Market Adjustments and Firm Behavior
Difficulty
medium level question
Cognitive Level
understand
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