Part 1Why are firms in oligopoly interdependent? Part 1Firms in oligopoly are interdependent because _______. A. an oligopoly market has barriers to entry B. each firm's actions influence the profits of all the other firms C. each firm produces a very small percentage of the market output D. the average total cost curve is downward-sloping along the relevant range of output

Question

Part 1Why are firms in oligopoly​ interdependent? Part 1Firms in oligopoly are interdependent because​ _______. A. an oligopoly market has barriers to entry B. each​ firm's actions influence the profits of all the other firms C. each firm produces a very small percentage of the market output D. the average total cost curve is​ downward-sloping along the relevant range of output

BlackTom AI · Accepted Answer

In examining why firms in an oligopoly are interdependent, we need to assess what each option claims about the nature of oligopolies.
Option A: 'an oligopoly market has barriers to entry.' While barriers to entry are indeed a characteristic of oligopolies and help maintain market structure, they do not by themselves explain why firms’ actions are interdependent. Barriers to entry explain why existing firms can earn profits without easy new entrants, but interdependence arises from strategic considerations among the few firms already in the market.
Option B: 'each firm’s actions influence the profits of all the other firms.' This statement directly captures the essence of interdependence in oligopolies. Because there are only a few firms (and each firm’s output, pricing, and strategic moves can significantly affect rivals), each firm must consider how its decisions will impact competitors and how competitors might respond. The profits of one firm are tightly linked to the responses of the others, creating strategic interdependence.
Option C: 'each firm produces a very small percentage of the market output.' This describes a characteristic more akin to perfect competition, where many small firms each contribute a tiny share of output. In an oligopoly, each firm typically accounts for a sizable share of the market, so this statement is incorrect and contradicts the interdependence dynamic.
Option D: 'the average total cost curve is downward-sloping along the relevant range of output.' The shape of the ATC curve is an efficiency/production issue and does not by itself establish why firms are interdependent. Interdependence stems from strategic interaction, not from a particular ATC slope.

Putting it together, the most accurate explanation among the options is that interdependence arises because each firm’s actions affect the profits of the others, leading to strategic behavior such as price leadership, collusion, or non-price competition. The other choices describe structural features or production considerations that do not directly account for the mutual influence that characterizes oligopolistic markets.

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