Degree of rivalry is
A)high when excess capacity of existing firms is low.
B)low when fixed costs of existing firms are high.
C)high when fixed costs of existing firms are low.
D)high when fixed costs of existing firms are high.

Question

Quizplus · Accepted Answer

When fixed costs of existing firms are high, it becomes difficult for them to compete with other firms in the industry. This results in intense competition, leading to a high degree of rivalry. When fixed costs are low, firms can easily enter or exit the industry, leading to a lower degree of rivalry. Excess capacity of existing firms (option A) or high fixed costs of existing firms (option B) do not necessarily lead to a high degree of rivalry.

Degree of Rivalry Is