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      Question

      Consider a market with a few dominant firms that sell

      differentiated products and engage in strategic pricing behavior. These firms often react to each other's price changes and promotional activities. Which of the following market structures best describes this scenario?
      A Perfect competition, where numerous firms sell identical products and have no control over price. Correct Answer Incorrect Answer
      B Monopolistic competition, where many firms sell differentiated products but have limited control over price due to the availability of substitutes. Correct Answer Incorrect Answer
      C Oligopoly, where a few firms dominate the market and their actions significantly impact each other. Correct Answer Incorrect Answer
      D Monopoly, where a single firm controls the entire market and has complete price-setting power. Correct Answer Incorrect Answer
      E Monopsony, where there is only one buyer in the market. Correct Answer Incorrect Answer

      Solution

      An oligopoly is characterized by a few large firms that dominate the market. These firms are interdependent, meaning their actions, such as price changes or advertising campaigns, can significantly impact the other firms in the market. This interdependence often leads to strategic behavior, such as price wars or collusion.

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