.Which of the following firms is most likely to have market power?

a.

a grocery store in a metropolitan area

b.

a convenience store in a suburb

c.

a pub in a college town

d.

the only gasoline station in a rural area

Question

.Which of the following firms is most likely to have market power?

a.

a grocery store in a metropolitan area

b.

a convenience store in a suburb

c.

a pub in a college town

d.

the only gasoline station in a rural area

BlackTom AI · Accepted Answer

To determine which firm is most likely to have market power, we examine the level of competition each market faces and how that affects the firm’s ability to influence prices.
Option a: a grocery store in a metropolitan area. In a city, there are typically many grocery stores, including large chains and local shops, creating substantial competitive pressure. This abundance of rivals reduces any single store’s market power, making it difficult to raise prices without losing customers.
Option b: a convenience store in a suburb. While closer than a grocery store, a suburban area usually hosts several convenience stores, gas stations, and other quick-stop retailers. The presence of nearby substitutes limits the ability of any one store to set prices, so market power remains limited.
Option c: a pub in a college town. A college town can have a number of bars and entertainment options, but pubs might still face competition from other nightlife venues, dining options, and social activities. Although there may be a niche audience, the overall market for casual drinking spots tends to be competitive, reducing substantial market power for a single pub.
Option d: the only gasoline station in a rural area. With no nearby competitors, this station effectively controls the local market for gasoline for the immediate area. In monopoly-like conditions, it can influence prices or terms of sale more than the others, since customers have few or no close substitutes nearby.
In sum, the presence of close substitutes and numerous competitors in options a, b, and c curtails market power, whereas option d describes a setting with little to no close competition, which is the classic scenario for significant market power.

LA-ECON-1101-813-14402-202520 Chapter 1

.Which of the following firms is most likely to have market power? a. a grocery store in a metropolitan area b. a convenience store in a suburb c. a pub in a college town d. the only gasoline station in a rural area

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