Which situation could be the best example of an oligopoly?

• A. A single company controlling the supply of electricity in a region.
• B. A market where consumers can freely enter and exit, and products are identical.
• C. A market with thousands of small farmers selling identical wheat.
• D. A market where a few large firms dominate the production and sale of automobiles.

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 that dominate the production and sale of a particular product or service.
2. Analyze each option to see if it fits the oligopoly characteristics: few large firms, significant market power, and interdependence among firms.
3. Option 1 describes a monopoly (a single company controlling supply), which is not an oligopoly.
4. Options 2 and 3 describe perfectly competitive markets with many small firms and free entry/exit, which are not oligopolies.
5. Option 4 describes a market with a few large firms dominating (automobile industry), which matches the definition of an oligopoly.