In which one of the following market situations are the firms mutually interdependent in pricing and output decisions?
(1) Oligopoly
(2) Monopsony
(3) Monopoly
(4) Monopolistic Competition
Answer - (1) Oligopoly
Explanation:
Oligopoly is a market situation where there are small number of sellers and large number of buyers, It is a state of limited competition among sellers. Therefore the firms are mutually interdependent for pricing and output decisions.
Monopsony is a market situation where there is a very large buyer who controls the large proportion on the market and thus controls the price. This is somewhat opposite to the monopoly and often called the buyer's monopoly.
Monopoly is a market situation where there is only one seller, who sells a unique product with no close substitutes nad therefore he faces no competition.
Monopolistic Competition is a market situation where there are large number of sellers selling differentiated products, which are not perfect substitutes. Therefore the firms are not mutually interdependent for pricing and output decisions.
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