Which of the following is a primary way oligopolistic firms can influence their own profits and the profits of their rivals?

• A. By engaging in strategic pricing and output decisions
• B. By ignoring the actions of other firms in the market
• C. By setting prices equal to marginal cost in all circumstances
• D. By operating independently without considering market demand

Answer: (A)

Verified step by step guidance

1. Understand the nature of an oligopoly: it is a market structure characterized by a few firms whose decisions directly affect each other.
2. Recognize that in an oligopoly, firms are interdependent, meaning each firm's pricing and output decisions influence the market and the profits of rival firms.
3. Identify that strategic behavior involves firms anticipating and reacting to the actions of their competitors, especially through pricing and output choices.
4. Eliminate options that do not reflect this interdependence, such as ignoring other firms, setting prices equal to marginal cost regardless of circumstances, or operating independently without considering market demand.
5. Conclude that the primary way oligopolistic firms influence profits—both their own and their rivals'—is by engaging in strategic pricing and output decisions.