When a second firm enters a monopolist's market

Question

Quizplus · Accepted Answer

When a second firm enters a monopolist's market, it breaks the monopolist's market power and creates competition. This leads to a decrease in the market price as both firms try to attract customers by lowering prices. The sales for the first firm may either increase or decrease depending on how it responds to the new competition. However, the first firm's profits are likely to decrease as it can no longer charge a monopoly price. Therefore, only option A is correct.

When a Second Firm Enters a Monopolist's Market