Final answer:
The statement about monopolistic competition is false since it involves many firms offering differentiated products, whereas the statement about oligopoly is true because it's a market dominated by a few large firms. The characteristics of an oligopoly include mutual interdependence and strategic decision-making, and such markets can vary from highly competitive to effectively monopolistic.
Step-by-step explanation:
The statement that 'The theory of monopolistic competition explains industries with a small number of small firms' is false. The theory of monopolistic competition actually describes a market structure where many firms sell similar but differentiated products, not a small number of firms. Similarly, the statement that 'The theory of oligopoly explains industries with a small number of large firms' is true. An oligopoly is a market form in which a market or industry is dominated by a small number of large sellers. This can sometimes create a scenario similar to the prisoner's dilemma, where firms must decide to compete or collude, which can have various outcomes on prices and profits depending on their choices.
In markets characterized by oligopoly, decisions made by one firm are often dependent on the actions of other firms within the market. This interdependence can lead to strategic behavior like price setting, output determination, and advertising strategies that take into account the likely responses of competitors. Industries like the auto industry, cable television, and commercial air travel are typical examples of an oligopoly. The existence of oligopolies is significant because of how they can influence competition, leading to varied outcomes ranging from cutthroat competition to collusion and monopolistic behaviors.