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Question 1) A key characteristic that sets oligopoly apart from other market structures is the fact that firms in an oligopolistic market are inter-dependent. Required:

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Question 1) A key characteristic that sets oligopoly apart from other market structures is the fact that firms in an oligopolistic market are inter-dependent. Required: a. In your own words, clearly explain what it means by "firms being inter-dependent". b. In November 2020, the Reserve Bank of Australia (RBA) cut the cash rate to a record low of 0.1%. The RBA also announced that commercial banks would be allowed to borrow from the RBA for three years at an interest rate of 0.1% via the so-called "Term Funding Facility". Both these moves curbed the costs of borrowing for commercial banks substantially. For simplicity purposes, assume that there are only two commercial banks operating in Victoria: Commonwealth Bank (CBA) and Westpac. Westpac is contemplating whether to pass the cuts in its borrowing costs to its home loan customers (i.e., reduce the interest rate charged on home loans). Suppose you are the chief economic adviser at Westpac. Would you suggest Westpac to cut its home loan interest rates? What are the factors you must put under consideration? c. Unlike the other three market structures, we do not analyse firms in an oligopoly market, using graphs (i.e., firm diagrams). We have to employ a different analysis technique called game theory. In your own words, clearly explain why it is not possible to draw graphs to illustrate a firm operating in an oligopoly market. Hint: It is tied with the fact that firms in an oligopoly market are inter-dependent

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