If a monopoly firm suddenly lost its barriers to entry and faced new competition,yet consumers thought that the former monopoly's products were somewhat different than its new competitors,then
A) the industry has probably become perfectly competitive.
B) long-run profit for this firm will likely exist.
C) the industry has probably become a monopolistically competitive industry.
D) the industry is probably cooperating to maximize joint profits.
E) the industry has probably become a monopoly.

Question

Quizplus · Accepted Answer

The presence of new competitors and the differentiation of products suggests that the industry has become monopolistically competitive, where firms can still earn long-run profits due to product differentiation. However, the industry is no longer a monopoly since there are now new competitors. Option A is incorrect as perfect competition requires no barriers to entry or exit and homogeneous products. Option B is partially correct, but it does not capture the fact that the industry structure has changed. Option D is unlikely as cooperation to maximize joint profits is typically illegal and difficult to maintain in a competitive market. Option E is incorrect as the industry is no longer a monopoly.

If a Monopoly Firm Suddenly Lost Its Barriers to Entry