Incumbents are unaffected by fixed costs of entry while potential entrants are affected by them because
A) for potential entrants the cost is avoidable, while for the incumbent, it is not.
B) fixed costs will be greater for the potential entrant than for the incumbent.
C) fixed costs are zero for the incumbent.
D) incumbents will act to prevent entry at all costs.

Question

Quizplus · Accepted Answer

Incumbents have already borne the fixed costs of entry and are not affected by them anymore, while potential entrants have yet to incur those costs. For potential entrants, these fixed costs can act as a barrier to entry, making it more difficult to enter the industry. However, for incumbents, these costs are part of their sunk costs and cannot be recovered, hence there is no effect on their decision-making.

Incumbents Are Unaffected by Fixed Costs of Entry While Potential