What is an oligopoly?
A) A market with no barriers to entry
B) A market structure where a few large firms dominate an industry
C) A situation where the government sets prices for all firms
D) A market with many small firms competing
Answer (2)
The question is about types of market structures in economics, and specifically asks about the characteristics of an oligopoly.
An oligopoly is defined by option B: 'A market structure where a few large firms dominate an industry.' In an oligopoly:
Few Firms Dominance: A small number of large firms hold significant market power and influence prices and output levels.
Barriers to Entry: There are typically high barriers to entry, preventing new entrants from easily entering the market. These barriers can include high startup costs, strong brand identity, and control over essential resources.
Interdependence: Firms in an oligopoly are interdependent, meaning the actions of one firm can significantly impact others. As a result, firms often consider the potential reactions of rivals when making decisions, such as price changes or new product launches.
Non-Price Competition: Due to the small number of firms, companies often engage in non-price competition, such as advertising and product differentiation, to maintain or grow market share.
Overall, oligopolies lie somewhere between perfect competition and monopoly, featuring elements of both. They can be found in various industries, such as the automobile sector, airlines, and telecommunications.
Therefore, the correct answer is B) A market structure where a few large firms dominate an industry.
An oligopoly is a market structure where a few large firms dominate an industry, which allows these firms to influence prices and output levels significantly. The key features include high barriers to entry, interdependence among firms, and non-price competition strategies. Therefore, the correct answer is B) 'A market structure where a few large firms dominate an industry.'
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