What effect does increasing competition have on price for firms with market power?
A)It inspires product differentiation and higher prices.
B)It drives the price down to the level of costs.
C)It pushes the price up above marginal revenue.
D)Price enters a cycle of ups and downs.

Question

Quizplus · Accepted Answer

Increasing competition reduces the market power of firms and they have to lower their prices in order to attract customers. Therefore, the price will be driven down to the level of costs.

What Effect Does Increasing Competition Have on Price for Firms