Each of the following is a determinant of market power but which is the critical determinant of market power?
A)The number of producers.
B)The size of each firm.
C)The extent of barriers to entry.
D)The availability of substitute goods.

Question

Quizplus · Accepted Answer

While all of the factors listed play a role in determining market power, the extent of barriers to entry is critical because it directly affects the level of competition in the market. When there are significant barriers to entry (such as high start-up costs or exclusive access to certain technologies), it is difficult for new firms to enter and compete with existing firms, giving those existing firms greater market power. However, if barriers to entry are low, new firms can more easily enter and compete, reducing the market power of existing firms.

Each of the Following Is a Determinant of Market Power