Answer to Question #291574 in Macroeconomics for Dae

Question

“The number of firms in an industry is not always a good indicator of the extent to which that industry is competitive.” Do you agree with this statement? Critically examine.

Answer 1

Market competition

No, the number of firms in an industry is among the main factor that determines the competitiveness of an industry.  The number of buyers and seller ascertains market competition. A perfectly competitive market has many buyers as well as sellers hence no individual buyer or seller affects the prices. A good example of a perfect competition is agricultural industry. Wheat production for instance, has many producers and equally many buyers who use it to make flour. As a result, no single farmer or buyer can significantly affect the price of wheat. Industries that are extremely competitive are those that has many firms and many buyers.