Assume there is a decrease in the number of substitutes for a good produced by a profit-maximizing price-setting firm.All else constant,this would cause the firm's ability to markup price above average cost to:
A)decrease.
B)stay the same.
C)increase.
D)cannot be determined with the information given.

Question

Quizplus · Accepted Answer

With fewer substitutes available, the demand for the firm's product becomes less elastic because consumers have fewer alternatives. This increases the firm's market power, allowing it to raise prices above average cost more than before.

Assume There Is a Decrease in the Number of Substitutes