CA Foundation · Business Economics · Price Determination in Different Markets
Which market structure is characterised by a small number of interdependent firms, where each firm must consider the likely reactions of rivals while deciding its price and output?
Oligopoly is the structure with few interdependent firms. Because there are only a few sellers, each firm's price and output decisions noticeably affect rivals, so every firm must anticipate their reactions. This mutual interdependence distinguishes oligopoly from the other market structures.
- APerfect competition
- BMonopoly
- COligopolyCorrect
- DMonopolistic competition
Explanation
In oligopoly there are few sellers, so the action of one firm materially affects the others. Hence mutual interdependence is its defining feature. In perfect competition and monopolistic competition, firms are numerous and largely ignore rivals' reactions, and a monopoly has no rivals.
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