Why is the automobile industry considered an oligopoly?

• A. Because the government sets prices and output for all firms in the industry.
• B. Because firms in the industry produce identical products with perfect information.
• C. Because a small number of large firms dominate the market and influence prices.
• D. Because there are no barriers to entry and many small firms compete.

Answer: (C)

Verified step by step guidance

1. Understand the definition of an oligopoly: It is a market structure characterized by a small number of large firms that dominate the industry, each having significant market power to influence prices and output.
2. Analyze the characteristics of the automobile industry: It is dominated by a few large firms that produce differentiated products and have substantial control over pricing decisions.
3. Compare the given options with the definition of oligopoly: The correct description aligns with the presence of a few large firms dominating the market and influencing prices.
4. Recognize why other options are incorrect: Government setting prices implies regulation, identical products with perfect information describe perfect competition, and many small firms with no barriers to entry also describe perfect competition, not oligopoly.
5. Conclude that the automobile industry is considered an oligopoly because a small number of large firms dominate the market and influence prices.