Question

Assume there are currently five firms producing and selling fertilizer in the South American market. Also assume that the product is differentiated and barriers to entry are high in the industry, making this market an oligopoly.If two firms were to exit the market, economists expect the equilibrium price will likely

a)not change
B)decrease
c) increase

Answer 1

Answer:

c) increase

Explanation:

This equilibrium price increases as demand increases, as demand for these two companies exits the market as competition decreases. People demand more chips from the remaining three companies. As competition diminishes, they have to supply more in return for that demand.

so correct option is c) increase