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Homework answers / question archive / The fewer the number of firms present in a market, the: a
The fewer the number of firms present in a market, the:
a. more likely market power will exist
b. less likely a monopoly it will behave
c. more competition is likely to be present
d. less likely barriers to entry are present
The answer is a.
When a market is populated by only a few number of firms, each firm will likely have power the influence the market price because each firm's production would represent a significant share of the total market production. Therefore, changes to a firm's production decisions would alter total production in a non-trivial way, thereby affecting prices through the forces of demand and supply. In this case, firms are more likely to have market power as measured by their ability to affect market price.
