Match the following characteristics with the appropriate market structures: (a) Expand output until marginal cost (MC) equals marginal revenue (MR). (b) Elasticity of demand faced by the firm depends on the pricing policies of rival firms.

Introduction / Context:
Market structure is a core topic in microeconomics. Different structures such as pure competition, monopoly, monopolistic competition and oligopoly have distinct features. Many exam questions ask candidates to match specific characteristics with the correct market form. In this question, one characteristic involves expanding output until marginal cost equals marginal revenue, and the other characteristic involves demand elasticity that depends on rivalry in pricing. Correctly identifying which market type each characteristic belongs to shows clear understanding of firm behaviour in different structures.

Given Data / Assumptions:
- Characteristic (a): Expand output until MC = MR.
- Characteristic (b): Elasticity of demand depends on pricing policies of rival firms.
- Options list different pairings with pure competition, pure monopoly, monopolistic competition and oligopoly.
- We assume standard textbook definitions of these market structures.

Concept / Approach:
In all profit maximising market structures, the basic condition for choosing output is MC = MR. However, this condition is most commonly highlighted and discussed in the context of a firm under pure competition or imperfect competition. In pure competition a single firm is a price taker and still expands output until MC equals the constant market price (which equals MR). The second characteristic, that elasticity of demand depends on rivals' pricing policies, is a hallmark of oligopoly, where a small number of firms are interdependent. In oligopolistic markets, each firm's demand curve and elasticity depend heavily on how competitors respond to price changes.

Step-by-Step Solution:
Step 1: Consider characteristic (a): expand output until MC = MR. This is a general profit maximisation rule but is widely presented and derived in the context of competitive markets where firms adjust output until MC equals the given market price. Step 2: Under pure competition, the firm faces a perfectly elastic demand curve at the market price, so MR equals price. The firm chooses quantity where MC equals MR (and hence equals price). Step 3: Now consider characteristic (b): elasticity of demand depends on the pricing policies of rivals. This emphasises interdependence, which is central to oligopoly. In oligopoly, each firm's demand curve changes shape depending on how competitors react to its pricing. Step 4: Compare these observations with the options. The option that pairs (a) with pure competition and (b) with oligopoly is option (c). Step 5: Therefore, the correct matching is (a) pure competition, (b) oligopoly.

Verification / Alternative check:
An additional check is to note that monopolistic competition does not prominently rely on explicit rival pricing interdependence in the same way as oligopoly. While firms do compete, the textbook treatment of oligopoly uniquely stresses that demand elasticity faced by each firm depends on rival behaviour, with concepts such as kinked demand curves. Pure monopoly has no rivals, so its demand curve and elasticity are determined by the market, not by competitors. This cross checking confirms that characteristic (b) fits oligopoly, and that leaves pure competition as the most suitable linkage for characteristic (a) in the provided options.

Why Other Options Are Wrong:
Option (a) is wrong because it links characteristic (b) to pure monopoly, but a monopolist has no rivals, so its demand elasticity does not depend on others' pricing policies.
Option (b) is wrong because it connects characteristic (a) with pure monopoly and (b) with monopolistic competition. While MC = MR holds for a monopolist, monopolistic competition does not emphasise interdependent pricing in the same specific way as oligopoly.
Option (d) is wrong because it assigns characteristic (a) to monopolistic competition and (b) to oligopoly, but the question expects a clear, standard pairing, and the provided statement for (a) is more directly associated in exam style questions with pure competition, especially given the alternative options.

Common Pitfalls:
Students sometimes assume that MC = MR applies only to monopoly because they first encounter this condition in monopoly diagrams. In reality it is a universal profit maximisation condition, including under pure competition. Another common confusion is between monopolistic competition and oligopoly since both involve many real world brands. The key difference is that monopolistic competition involves many small firms with negligible strategic interdependence, whereas oligopoly involves few large firms whose pricing decisions directly affect each other. Remembering this difference will help match characteristics correctly in similar questions.

Final Answer:
The correct matching is (a) pure competition, (b) oligopoly.