When two firms interact in an oligopolistic market, which of the following is most likely to occur?

• A. Firms act as price takers without any strategic behavior.
• B. There is perfect competition and no barriers to entry.
• C. Each firm's decisions depend on the expected reactions of the other firm.
• D. Firms ignore each other's pricing and output decisions.

Answer: (C)

Verified step by step guidance

1. Understand the nature of an oligopolistic market: it is a market dominated by a small number of firms, where each firm's actions can significantly affect the others.
2. Recognize that in such markets, firms do not behave like price takers (as in perfect competition) because their decisions influence market prices and outcomes.
3. Recall that firms in oligopoly are interdependent, meaning each firm must consider how its rival will react to its pricing and output decisions.
4. Identify that this interdependence leads to strategic behavior, where firms anticipate and respond to the expected reactions of their competitors.
5. Conclude that the most likely scenario is that each firm's decisions depend on the expected reactions of the other firm, reflecting the strategic interaction characteristic of oligopolies.