Suppose that firms are located in a circle on an island. You are given transportation costs, fixed costs, variable costs, and demand (assume that customers are spread evenly along the circle). As the number of customers increase,
A)the number of firms will rise in the long run.
B)the number of firms will fall in the long run.
C)the number of firms will stay the same in the long run.
D)It is impossible to tell from the information given

Question

Quizplus · Accepted Answer

As the number of customers increases, the market becomes larger, allowing more firms to enter and sustain themselves in the long run due to increased demand. This is based on the assumption that with more customers, the revenue potential increases, making it viable for more firms to cover their costs and compete in the market.

Suppose That Firms Are Located in a Circle on an Island