Question

Which of the following is true in an oligopoly?

Options:
Option 1: Limited competition among a few firms.
Option 2: Perfect competition with numerous small firms.
Option 3: Monopolistic control by a single firm.
Option 4: No competition in the market.

Answer 1

The true statement in an oligopoly is Option 1: Limited competition among a few firms, as oligopolies are markets with few dominant firms that are interdependent.

Step-by-step explanation:

In an oligopoly, the market is characterized by limited competition among a few firms. Unlike perfect competition with many small firms, or a monopoly with one dominant firm, oligopolies exist in markets such as the auto industry, cable television, and commercial air travel. Oligopolistic firms face the temptation to either collude, acting like a monopoly to maximize profits, or to compete, potentially reducing prices and profits.

Decisions such as output, price, and advertising depend on the actions of the other firms in the market due to mutual interdependence. Therefore, the correct answer to the question is Option 1: Limited competition among a few firms.