A consolidated industry turns into a fragmented industry when:

• A. a single firm acquires most competitors and dominates the market
• B. consumer demand for the industry's product sharply declines
• C. barriers to entry are reduced, allowing many new firms to enter the market
• D. government regulations increase, restricting the number of firms

Answer: (C)

Verified step by step guidance

1. Understand the definitions of 'consolidated industry' and 'fragmented industry': A consolidated industry is dominated by a few large firms, while a fragmented industry has many small firms competing.
2. Analyze the effect of each option on the market structure: For example, if a single firm acquires most competitors, the industry becomes more consolidated, not fragmented.
3. Focus on the role of barriers to entry: When barriers to entry are reduced, it becomes easier for new firms to enter the market, increasing the number of competitors and leading to fragmentation.
4. Recognize that a decline in consumer demand or increased government regulations typically do not directly cause fragmentation; they may reduce market size or restrict firms but do not increase the number of competitors.
5. Conclude that the correct condition for an industry to become fragmented is when barriers to entry decrease, allowing many new firms to enter and compete.