Which of the following best represents the pricing behavior of firms in an oligopolistic market?

• A. Firms are interdependent and often consider rivals' reactions when setting prices.
• B. Firms always act as price takers, accepting the market price.
• C. Firms set prices independently without regard to competitors.
• D. Firms can freely enter and exit the market, leading to perfectly competitive pricing.

Answer: (A)

Verified step by step guidance

1. Step 1: Understand the characteristics of an oligopolistic market. In such a market, there are a few dominant firms, and each firm's decisions affect the others.
2. Step 2: Recognize that because firms are few and large, they are interdependent. This means each firm must consider how rivals might react when it changes prices or output.
3. Step 3: Contrast this with perfect competition, where firms are price takers and cannot influence the market price, and with monopoly or monopolistic competition, where firms have different pricing behaviors.
4. Step 4: Analyze the given options and identify that the statement 'Firms are interdependent and often consider rivals' reactions when setting prices' aligns with the key feature of oligopoly pricing behavior.
5. Step 5: Conclude that in oligopolistic markets, firms do not set prices independently or accept market prices passively; instead, they strategically consider competitors' potential responses.