Erin Reinhardt and her friend Carol Newman have just arrived in the country Bolo

Question

Erin Reinhardt and her friend Carol Newman have just arrived in the country Boloni for a summer holiday. While renting a car on their first day in Boloni they notice that the car rental rates are so much higher than rates back home. Carol says that in a matter of time, competition should drive prices down. Erin feels that the market for car rentals is probably competitive enough; it could just be high cost of operations in Boloni that are responsible for the high prices.

Which of the following conclusions is most strongly supported by the given information?

a) the economy of boloni is mainly driven by the tourism sector

b.)both carol and erin think that the car rental industry in boloni does not have significant barriers to entry

C) Carol thinks that the demand for rented cars is stronger in Boloni than in her home country.

D) The rate of inflation is higher in Boloni than in Erin's home country.

E)The price of gasoline is higher in Boloni than in Carol's home country.

Explanation / Answer

Answer is option b, because both assumes the market for rented car is competitive. The competitive markets characterised by free entry and exit. Therefore option b.

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