Question

Which of the following is wrong?

A. The low number of customers brings more competition.

B. The absence of any barriers to entry into the sector is an opportunity for existing businesses in the sector.

C. Competition intensity depends on factors such as balance of supply and demand, fixed costs, number of suppliers, and number of customers.

D. Increasing the number of businesses operating in the market will also increase competition.

E. The higher the barriers to entry into the industry, the higher the sector profitability tends to be.

Answer 1

1.    The low number of customers bring more competition

Competition usually exists in a market which is highly lucrative for firms. This market usually consists of a large number of customers that are targeted to maximize profits.

A low barrier to entry indicates a greater ease to do business which in turn encourages more businesses to enter the market and compete with each other.

The increase in the number of businesses in the market also results in an increase in competition since the consumers have a wide range of options to choose from.

Higher barriers to entry indicate a low number of competitors which in turn means greater profitability for the small number of firms in that market.