Question

Group of firms producing goods that are close substitutes are called

Answer 1

A group of firms producing goods or services that are close substitutes-in-consumption. The similarity of the products makes it possible to analyze the production in a market framework. An industry can be broadly defined, such as the manufacturing industry, or narrowly specified, such as the root beer industry. For most economic analysis the term industry is used interchangeably with the term market.The key to answering questions about what constitutes an industry is often found with the cross elasticity of demand. This is the relative response in the demand for one good relative to a change in the price of another good.

Substitutes-in-consumption have a positive cross elasticity of demand. In other words, if the price of one good increases, then buyers purchase less of that good and more of the substitute good. If the price of root beer increases, then buyers are likely to switch to a substitute good, such as a cola drink.

The greater the cross elasticity of demand, then the closer two goods are as substitutes-in-consumption. In fact, if the cross elasticity of demand is the same as the price elasticity of demand, then two goods are effectively the same good. As far as buyers are concerned, the two goods are perfect substitutes.

As such, the ideal way to determine which goods and firms are included in a particular industry is to identify the cross elasticity of demand between goods. Those goods with a greater cross elasticity of demand are better candidates for inclusion. Even more important, those goods with a zero cross elasticity of demand can be excluded from the market.

If, for example, the cross elasticity of demand between milk and carbonated drinks is zero, then milk can be excluded from the soft drink market.

Answer 2

Oligopolistic firms produce goods that close substitutes.

- These are large firms that have invested heavily in the production of  a certain commodity. The products range from household items to products such as air craft,arms, cars etcetra

The companies operate on the economies of scale by producing large quantities of the product thus blocking other firms and thus they remain few