What market structure is defined by a few firms that dominate the market?

The correct answer is C, oligopoly, which is characterized by a market structure where a small number of firms hold a significant share of the market. These firms have considerable market power, which allows them to influence prices and output levels. Each firm in an oligopoly is aware of the actions and reactions of its competitors, leading to interdependent decision-making. This structure often results in scenarios where firms may engage in competition, but they also tend to exhibit cooperative behavior, such as forming cartels or colluding to collectively influence market conditions.

In contrast, the other market structures represent different characteristics: a monopoly implies a single firm dominating the entire market, perfect competition involves many firms offering similar products where no single firm has significant market power, and a monopsony refers to a market situation where there is only one buyer for many sellers. Understanding these distinctions helps to recognize the dynamics and strategies prevalent in an oligopoly, which affect pricing and output levels in ways that differ markedly from other market structures.