Multiple Choice
A major threat to long term profits exists when barriers to entry into an industry are high
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14. Oligopoly
Characteristics of Oligopoly
Multiple Choice
Which of the following best describes the market structure when an oligopoly exists?
A
Firms sell identical products and there are no barriers to entry.
B
A few large firms dominate the market and each firm's decisions affect the others.
C
A single firm controls the entire market with no close substitutes.
D
Many small firms compete and none can influence market price.
Verified step by step guidance1
Understand the definition of an oligopoly: it is a market structure characterized by a small number of large firms dominating the market.
Recognize that in an oligopoly, each firm's decisions (such as pricing and output) have a significant impact on the other firms, leading to strategic interdependence.
Compare the options given: identify that 'a few large firms dominate the market and each firm's decisions affect the others' matches the characteristics of an oligopoly.
Note that other options describe different market structures: perfect competition (many small firms, no influence on price), monopoly (single firm controls market), and monopolistic competition or perfect competition (identical products with no barriers).
Conclude that the best description of an oligopoly is the one emphasizing few large firms and mutual influence on decisions.
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