ACCA Performance Management (F5) Certification Practice Exam

Which of the following is included in oligopoly?

1. Only a single firm dominating

2. Large number of small firms

3. A few firms dominating the market

4. Perfect competition

The correct answer is: A few firms dominating the market

In an oligopoly, the market is characterized by the presence of a small number of firms that hold a significant share of the market. This means that the actions and decisions of one firm can directly influence the behavior of the others, leading to strategic interdependencies among the firms. Such a market structure often fosters competition, but not to the extent seen in perfect competition or monopolistic competition. In oligopoly, firms may engage in various strategies, such as price setting or collusion, which can lead to higher prices and limited consumer choice compared to more competitive markets. The limited number of firms means that each one takes into consideration the potential reactions of its rivals, which can lead to a variety of market outcomes, from competitive to cooperative. Other options do not accurately reflect the nature of an oligopoly. A single firm dominating the market describes a monopoly, while a large number of small firms might characterize a competitive market or perfect competition. Perfect competition itself involves many firms, selling identical products, without any market dominance, which is not the case in oligopoly. Thus, recognizing that oligopoly involves a few firms is key to understanding this market structure.