The most common reason that oligopolies exist is:

• A. A large number of small firms competing in the market
• B. Government regulation that enforces perfect competition
• C. Firms producing identical products with no differentiation
• D. Barriers to entry that prevent new firms from entering the market

Answer: (D)

Verified step by step guidance

1. Understand the definition of an oligopoly: it is a market structure characterized by a few large firms dominating the market.
2. Recognize that the key feature allowing oligopolies to exist is the presence of barriers to entry, which prevent new firms from easily entering the market and competing.
3. Identify common types of barriers to entry such as high startup costs, control over essential resources, economies of scale, or legal restrictions.
4. Contrast this with other market structures: perfect competition has many small firms and no barriers to entry, while monopolistic competition involves product differentiation but still relatively easy entry.
5. Conclude that the most common reason oligopolies exist is due to barriers to entry that limit competition and maintain the dominance of a few firms.