In a competitive market, just how strong the competitive pressures are from other firms is primarily determined by:

• A. the degree of product differentiation among firms
• B. the level of government regulation in the industry
• C. the number of firms and the ease of entry and exit in the market
• D. the amount of advertising each firm undertakes

Answer: (C)

Verified step by step guidance

1. Understand that in a competitive market, the intensity of competitive pressure depends on how easily firms can enter or leave the market and how many firms are competing.
2. Recognize that the number of firms in the market affects competition because more firms typically mean more competition, which drives prices and profits down.
3. Consider the ease of entry and exit, which refers to how simple or difficult it is for new firms to start operating or for existing firms to leave the market; easier entry and exit increase competitive pressure.
4. Note that while product differentiation, government regulation, and advertising can influence competition, the primary determinants of competitive pressure in a perfectly competitive market are the number of firms and the ease of entry and exit.
5. Summarize that the correct answer focuses on market structure characteristics—specifically, the number of firms and the barriers to entry and exit—as the main drivers of competitive pressure.