Question

In a duopoly, each firm faces: a more elastic demand curve if it lowers its price a. b. a perfectly elastic demand curve a perfectly inelastic demand curved C. a more elastic demand curve if it raises its price d.

Answer 1

The answer is D). a more elastic demand curve if it raises its prices.

Both firms operating in duopoly dominate a large share of the market, and therefore most price and quantity decisions depend on them. Similarly, both firms may not be able to operate or act independently because decisions made by one firm automatically elicits reaction or response from another so as to compete effectively. Therefore, both firms survive by agreeing to set prices at convenient levels because consumers will tend to shift demand based on who offers the best prices for the same goods or service. Should one firm raise its prices, then demand for goods or services shifts greatly.