Question

When a firm in an oligopoly considers implementing a particular strategy, it bases its decision to do so

A. on both the impact to its profit that would result from that strategy and on the possible reaction by its competitors if it adopts that strategy.
B. only on the possible reaction by its competitors if it adopts that strategy.
C. on neither the impact to its profit that would result from that strategy nor on the possible reaction by its competitors if it adopts that stragy.
D. only on the impact to its profit that would result from that strategy.

Answer 1

The correct answer is A, as firms in an oligopoly must consider both the potential profit impact and the competitors' reactions when deciding on a strategy.

Step-by-step explanation:

When a firm in an oligopoly considers implementing a particular strategy, it bases its decision on both the impact to its profit that would result from that strategy and on the possible reaction by its competitors if it adopts that strategy. This means the correct answer is A. Oligopolistic firms must consider both the internal financial implications of their strategies and the external competitive environment. They operate within a market structure where each firm's actions can have a significant impact on the others, often leading to situations such as the prisoner's dilemma where individual rational choices lead to a suboptimal collective outcome.