Final answer:
In economics, an oligopoly is a market structure where a small number of firms dominate the industry, characterized by strategic decision-making and high entry barriers. Firms in oligopolistic markets, like Boeing and Airbus in aircraft manufacturing or Coca-Cola and Pepsi in soft drinks, can collaborate or compete, affecting market outcomes. For monopolistically competitive firms, long-term profits tend toward normal levels due to easy market entry and exit. The correct choice of option is oligopoly. monopolistically competitive. perfectly competitive. pure monopoly.
Step-by-step explanation:
When studying market structures in Business and Economics, there are various categories including monopolistic competition, oligopoly, perfect competition, and pure monopoly. An industry dominated by a small number of firms, such as the commercial aircraft industry with Boeing and Airbus, or the U.S. soft drink industry with Coca-Cola and Pepsi, is typically characterized as an oligopoly.
These markets are known for high barriers to entry and strategic decision-making influenced by competitors. Firms in an oligopoly could face a dilemma: to collaborate like a monopoly or compete individually by expanding output and reducing prices.
In monopolistic competition, firms possess the ability to set prices and have differentiated products. If these firms earn economic profits, new competitors are likely to enter the market until profits reach a normal level. Conversely, if there are economic losses, firms will exit the market until the remaining firms reach a normal profit level. Long-term economic profit in monopolistic competition tends toward zero because of the ease of entry and exit in the market.