question_answer

Explain the implication of large number of sellers in a perfectly competitive market.

Or

Explain why firms are mutually interdependent in an oligopoly market.

Answer:

There exist a large number of buyers and sellers in a perfectly competitive market. The number of sellers is so large that no individual firm owns the control over the market price of a commodity. Due to the large number of sellers in the market, there exists a perfect and free competition. A firm acts as a price taker while the price is determined by the ?invisible hands of market?, i.e., by ?demand for? and ?supply of? goods. Thus, we can conclude that under perfectly competitive market, an individual firm is a price taker and not a price maker.

Or

Oligopoly market structure consists of only a few firms. The firms under such a market structure experience a high degree of mutual interdependence. This is because the price and the output decisions of the firms are interdependent on each other. The price and output policy of a firm affects the policies and profit of another firm. This is because when one firm lowers (rises) its prices, the rival firms may or may not follow suit. This makes the demand curve under the oligopoly market structure indeterminate, thereby -makes the firms mutually interdependent in an oligopoly market.