Karen Parker wants to establish an environmental testing company that would specialize in evaluating the quality of water found in rivers and streams. However, Parker has discovered that she needs either certification or approval from five separate local and state government agencies before she can commence business. Also, the necessary equipment to begin would cost several million dollars.
However, Parker believes that if she is able to obtain capital resources, she can gain market share from the two major competitors.
The market structure Karen Parker is attempting to enter is best described as:
- Pure competition.
- A natural monopoly.
- An oligopoly.
- Monopolistic competition.
Answer(s): C
Explanation:
Choice "c" is correct. Major competitors and substantial capital requirements (high barriers to entry) are oligopolistic market conditions.
Choice "a" is incorrect. Pure competition has small barriers to entry and numerous suppliers.
Choice "b" is incorrect. A natural monopoly suggests that economic conditions allow only one supplier for efficiency purposes.
Choice "d" is incorrect. Monopolistic competition has easier barriers to entry and more firms competing to supply the market than oligopoly.