Match the characteristics with the market structure: (a) a firm has control over its output but must consider competitors reactions; (b) a firm chooses output to maximise profit. Which pairing is correct?

Introduction / Context:
Market structures differ in the number of firms, product type and the degree of control each firm has over price and output. This matching question combines two specific descriptions and asks you to connect them with the appropriate market structures. Understanding these differences is important for analysing pricing strategies and competitive behaviour in microeconomics.

Given Data / Assumptions:

• Characteristic (a): a firm has control over its own output, but must consider the reactions of competitors.
• Characteristic (b): a firm chooses its level of output to earn maximum profit.
• We need to match these characteristics with known market structures such as pure competition, monopolistic competition, oligopoly and pure monopoly.
• Firms are assumed to behave rationally to maximise profits when they have discretion over output.

Concept / Approach:
An oligopoly is a market structure with a few large firms, where each firm has some control over its output and price but must consider the reactions of rivals. Interdependence is a key feature of oligopoly. A pure monopoly is a single seller in the market. The monopolist has full control over output and price and typically chooses output where marginal revenue equals marginal cost in order to maximise profit. Pure competition involves many small firms that are price takers, so an individual firm does not consider rival reactions in the same strategic way.

Step-by-Step Solution:
1. For characteristic (a), the mention of reacting to competitors clearly points to a market with a few firms that are interdependent. 2. This is the classic description of an oligopoly, where each firm must anticipate or react to the strategic decisions of its rivals. 3. For characteristic (b), choosing output to maximise profit applies most directly to a firm that has full control over price and quantity. 4. A pure monopolist is the sole seller and sets output and price to maximise profit by equating marginal revenue and marginal cost. 5. Therefore the correct pairing is (a) oligopoly and (b) pure monopoly.

Verification / Alternative check:
Pure competition does not fit characteristic (a) because individual firms are price takers and do not worry about individual rivals; they focus on market price. Monopolistic competition has many firms with differentiated products, but strategic interdependence is less intense than in oligopoly. For characteristic (b), monopoly is most strongly associated with output and price choice to maximise profit, whereas in pure competition firms have no power over price, only over quantity at the prevailing price.

Why Other Options Are Wrong:
Option A: Pure competition is not about strategic reaction to competitors, because there are many firms and each is too small to influence market conditions.
Option B: Monopolistic competition does not show the same level of interdependence described in characteristic (a), and oligopoly is not uniquely linked to the second characteristic.
Option C: A pure monopolist is not best matched with the idea of taking competitors reactions into account because by definition there are no close competitors.
Option E: Pure competition again does not involve conscious reaction to competitors in the strategic sense and therefore does not match characteristic (a).

Common Pitfalls:
A frequent error is to assume that profit maximisation only applies to monopoly and not to other market structures. In fact, all rational firms aim to maximise profit, but the question highlights the situation where the firm has full control over output and price, which is most clearly associated with pure monopoly. Another confusion is between monopolistic competition and oligopoly, so always remember that interdependence and strategic behaviour are defining features of oligopoly.

Final Answer:
(a) Oligopoly, (b) Pure monopoly