Refer to the Diagram for a Non-Collusive Oligopolist

question 145

Multiple Choice

Refer to the diagram for a non-collusive oligopolist. Suppose that the firm is initially in equilibrium at point E, where the equilibrium price and quantity are P and Q. Which of the following statements is correct?

• A)Demand curve D₁ assumes that rivals will match any price change initiated by this oligopolist.
• B)Demand curves D₁ and D₂ both assume that rivals will ignore any price change initiated by this oligopolist.
• C)Demand curves D₁ and D₂ both assume that rivals will match any price change initiated by this oligopolist.
• D)Demand curve D₂ assumes that rivals will match any price change initiated by this oligopolist.

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Definitions:

NPV

Net Present Value (NPV) is a financial metric used to evaluate the profitability of an investment or project, calculated by summing the present values of incoming and outgoing cash flows.

Cost of Capital

The rate of return that a company must pay on its investments to satisfy its shareholders or debt-holders.

Cash Flows

All money transactions entering and leaving a firm, with a significant influence on its liquidity.

Interest Payments

The amount paid by a borrower to a lender as compensation for the use of borrowed money.