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CA Foundation · Business Economics · Price Determination in Different Markets

Which of the following market structures is characterised by a few interdependent sellers, where each firm must consider the likely reaction of rivals before changing its price or output?

The correct answer is oligopoly. With only a few sellers, each firm's price or output decision visibly affects its rivals, so firms must anticipate reactions. This mutual interdependence distinguishes oligopoly from perfect competition, monopolistic competition and monopoly, where rivals' reactions are either negligible or absent.

  1. APerfect competition
  2. BMonopoly
  3. COligopolyCorrect
  4. DMonopolistic competition

Explanation

In oligopoly there are only a few sellers, so the actions of one firm noticeably affect the others. Interdependence of decision-making is therefore its defining feature. In perfect competition and monopolistic competition, firms are so numerous that rivals' reactions can be ignored, and a monopolist has no rival.

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