Chapter 12R, Problem 2MCQ

To determine

The correct option for behavior and prices for market structure with large number of firms can be selected.

Answer to Problem 2MCQ

Option b is correct.

Explanation of Solution

Explanation for correct option:

b.

The market structure where there are large number of firms in an industry prevail then they starts behaving non-cooperative and also the prices that are charged by the firms are relatively low. Prices are low because firms have to compete with large number of firms. Therefore, option b is correct.

Explanation for incorrect options:

a.

Collusion is possible in oligopoly where there are few firms operating in the industry. In oligopoly, the firms can collude and can control the price of their output as there are few firms and can take their decisions collaborate. Therefore, option a is incorrect.

c.

Dominant strategy with high prices can be pursued in the industry where there are only single or few seller in the market. Therefore, option c is incorrect.

d.

Strategic behavior can be followed if there are few firms or firms can collaborate make decisions about the output level and the prices. Therefore, option d is also incorrect.

e.

Tit for tat is a strategy where firm can follow the trend as per the behavior of opposite party. It can be done only with few firms not for large number of firms. Therefore, option e is incorrect.

Economics Concept Introduction

Market structure: Market structure can be defined as the structure that is selected by the firms to conduct their business activities by offering certain products and services to meet or generate demand of customers.