Question

Under oligopoly, if one firm in an industry significantly increases advertising expenditures to capture a greater market share, it is most likely that other firms in that industry will rev: 05_15_2018 Multiple Choice increase the price of the product to improve profits and then increase advertising expenditures. decide to increase advertising expenditures even if it means a reduction in profits. pursue a strategy to reduce advertising expenditures to maintain profits. make no changes in advertising expenditures because advertising is effective in the short run, but not the long run.

Answer 1

Answer:

decide to increase advertising expenditures even if it means a reduction in profits.

Explanation:

An oligopoly can be defined as a market structure comprising of a small number of firms (sellers) offering identical or similar products, wherein none can limit the significant influence of others.

Hence, it is a market structure that is distinguished by several characteristics, one of which is either similar or identical products and dominance by few firms.

The characteristics of an oligopolistic market structure are;

I. Mutual interdependence between the firms.

II. Market control by many small firms.

III. Difficult entry to new firms.

Under oligopoly, if a business firm decides to significantly increase its advertising expenditures in order to increase its market share, it is most likely that other business firms in that industry will decide to increase advertising expenditures even if it means a reduction in profits.

Basically, the behavior of all business firms is highly dependent on the behavior of the other firms in the industry is oligopoly.