Multiple Choice
Which of the following characteristics is prevalent in oligopolies?
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14. Oligopoly
Characteristics of Oligopoly
Multiple Choice
Which of the following firms would an economist most likely label as an oligopolist?
A
A single utility provider with exclusive rights in a city
B
A company that is one of a few large firms dominating the automobile industry
C
A farmer selling wheat in a perfectly competitive market
D
A small local bakery operating in a market with many competitors
Verified step by step guidance1
Step 1: Understand the definition of an oligopoly. An oligopoly is a market structure characterized by a small number of large firms that dominate the market, often producing similar or differentiated products, and where each firm's decisions affect the others.
Step 2: Analyze each option in terms of market structure characteristics. For example, a single utility provider with exclusive rights is a monopoly, not an oligopoly, because there is only one firm.
Step 3: Recognize that a farmer selling wheat in a perfectly competitive market operates in a market with many sellers and identical products, which is the opposite of an oligopoly.
Step 4: Identify that a small local bakery in a market with many competitors is also part of a competitive market, not an oligopoly, due to the large number of firms and low market power.
Step 5: Conclude that the company that is one of a few large firms dominating the automobile industry fits the oligopoly definition, as the automobile industry is typically dominated by a few large firms whose actions influence each other.
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