If one firm operating in an oligopoly raises its price and other firms do not do so, what is the most likely outcome for the firm that raised its price?

• A. All firms will immediately follow and raise their prices as well.
• B. It will gain a larger market share.
• C. Its total revenue will increase substantially.
• D. It will lose a significant share of its customers to rival firms.

Answer: (D)

Verified step by step guidance

1. Understand the nature of an oligopoly market: a few firms dominate the market, and each firm's decisions affect the others.
2. Recognize that in an oligopoly, firms are interdependent, so if one firm raises its price while others keep theirs constant, consumers will likely switch to the cheaper alternatives.
3. Analyze the demand response for the firm that raised its price: since its product is now more expensive relative to competitors, its quantity demanded will decrease.
4. Consider the impact on total revenue: losing customers due to a higher price typically reduces the firm's total revenue, especially if the demand is elastic.
5. Conclude that the most likely outcome is the firm losing a significant share of its customers to rival firms, as customers prefer lower-priced substitutes in an oligopolistic market.