Q.(a) Describe the features of Oligopoly.

(a) Oligopoly is a market of a few interdependent sellers marked by price rigidity, a kinked demand curve, selling costs and entry barriers. (b) In the short run, TFC is fixed, TVC and TC rise with output, AFC falls continuously, and AVC, ATC and MC are U-shaped with MC cutting AVC and ATC at their minima.

(a) Features of Oligopoly (in the Tamil Nadu HSC Class-11 Economics syllabus):

• Few sellers — a small number of large firms dominate the market (e.g. cement, automobiles, aluminium).
• Interdependence — each firm's price and output decisions strongly affect the others, so every firm must watch and react to rivals' actions.
• Indeterminate / kinked demand curve — because of interdependence, a firm's demand curve has a 'kink' at the ruling price: rivals follow a price cut but not a price rise.
• Price rigidity — prices tend to remain sticky/stable even when costs change, because firms fear price wars.
• Selling costs and advertisement — heavy advertising and aggressive sales promotion are used to capture markets.
• Barriers to entry — large capital needs, patents and control over resources restrict the entry of new firms.
• Non-price competition — firms compete through quality, brand, after-sales service and gifts rather than price.
• Group behaviour — firms may collude (cartel) or act in a group to fix prices and share the market.

(b) Short-run cost curves (diagram described in words):

On a graph with output (Q) on the horizontal axis and cost on the vertical axis:

• Total Fixed Cost (TFC): a horizontal straight line parallel to the output axis, because fixed cost stays the same at all output levels.
• Total Variable Cost (TVC): starts from the origin and rises with output, first at a decreasing rate then at an increasing rate (inverse-S shape).
• Total Cost (TC): the vertical sum of TFC and TVC; it lies above TVC by the constant TFC amount and rises with output. …