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'Interdependence of firms' is a key characteristic of which of the following market structures?Perfect competitionMonopolistic competitionOligopolyMonopoly

Question

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Solution

The key characteristic of 'Interdependence of firms' is most commonly associated with an Oligopoly market structure.

Here's why:

  1. Perfect Competition: In this market structure, there are many firms, each selling an identical product. So, no single firm can influence the market price, and they do not depend on each other's actions.

  2. Monopolistic Competition: Here, many firms are selling products that are similar but not identical. Although firms have some control over their product price, they operate independently and their decisions do not directly depend on each other.

  3. Oligopoly: This is a market structure in which a few large firms dominate the market. Since there are few players, the actions of one firm will directly affect the others. Therefore, firms are highly interdependent and must consider the potential reactions of its rivals to any business decisions.

  4. Monopoly: In this market structure, there is only one firm, so there is no interdependence.

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