Assume an industry,currently dominated by one firm,experiences a large decline in fixed costs.This will
A) make entry of other firms more likely.
B) make entry of other firms less likely.
C) serve as higher barrier to entry.
D) induce the incumbent firm to exit the industry.

Question

Quizplus · Accepted Answer

A large decline in fixed costs makes it easier for new firms to enter the industry as they do not have to incur as high initial costs. As a result, the dominant firm will face increased competition, leading to a decrease in market power. Therefore, entry of other firms becomes more likely.

Assume an Industry,currently Dominated by One Firm,experiences a Large Decline