Law of Concentration

### Low Concentration leads to minimum prices and zero profits. The fewer firms that dominate a market, the greater is the likelihood that firms will avoid cutthroat competition and succeed in maintaining high prices.

## Step1: Understanding the Law of Concentration### The Law of Concentration refers to the relationship between the number of firms in a market and the level of competition. It suggests that as the number of firms decreases, the level of competition also decreases. This is because fewer firms mean less competition for market share, which can lead to higher prices and profits for the remaining firms.## Step2: Impact of Low Concentration### When there is a low concentration of firms in a market, it means that a few firms dominate the market. These firms are less likely to engage in aggressive price competition because they have a significant market share and can maintain high prices without fear of losing customers to competitors. This results in minimum prices and zero economic profits for these firms.## Step3: Avoiding Cutthroat Competition### With fewer firms dominating the market, there is a greater likelihood that these firms will avoid cutthroat competition. Cutthroat competition refers to aggressive pricing strategies where firms lower their prices to extremely low levels in an attempt to drive competitors out of the market. By avoiding this type of competition, the dominant firms can maintain high prices and zero economic profits.