Question

When Toyota experienced declining sales as a result of quality and safety issues, it began offering buyer incentives to new-car buyers. Nearly immediately, Ford and General Motors began similar promotions. These businesses A. represent an oligopoly in which there are few sellers and each seller has considerable control over price. B. represent a monopoly in which only one firm supplies a product or products. C. are engaging in monopolistic competition in which there are many buyers as well as a relatively large number of sellers that differentiate their products from those of competitors. D. are engaging in pure competition, in which no single seller is powerful enough to affect prices. E. are engaging in monopolistic competition, in which the products are very similar.

Answer 1

A. Represent an oligopoly in which there are few sellers and each seller has considerable control over price

Step-by-step explanation:

An oligopoly refers to a market form characterized by small number of sellers firms, wherein each seller exercises significant influence on the price and output level.

Following are the features of this market form;

• Few dominant firms
• Mutual inter- dependence
• Barriers to entry
• Homogeneous/ Differentiated products

Oligopoly can be of 2 kinds,

Pure Oligopoly , wherein the sellers produce homogeneous products

Differentiated Oligopoly, wherein the sellers produce distinct or unique products.

The given case indicates the operation of Differentiated oligopoly as all car manufacturers produce slightly different car variants. Also, when one of the sellers i.e Toyota decided to offer buying incentives, the other players too stepped in, since, Under Oligopoly, price and output decisions of one firm directly affect the profitability of other firms.