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IAI Actuarial Core Principles · Business Economics · Profit maximisation under imperfect competition

Which feature best distinguishes an oligopoly market such as Indian private life insurance from monopolistic competition?

The distinguishing feature is that a few firms make interdependent decisions, so each must anticipate rivals' reactions. Downward-sloping demand, differentiation and advertising appear in both structures, while free entry with zero long-run profit belongs to monopolistic competition.

  1. AFirms face downward-sloping demand curves
  2. BProducts may be differentiated
  3. CFree entry and exit with zero long-run economic profit
  4. DA few firms whose decisions are interdependentCorrect
  5. Firms advertise to raise demand

Explanation

Interdependence among a small number of firms is the defining feature of oligopoly, since each firm's best action depends on rivals' reactions. Downward-sloping demand, differentiation and advertising occur in both structures, and free entry with zero long-run profit characterises monopolistic competition.

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