The logic of industry analysis implies that in industries with high barriers to entry, existing firms will be less profitable than those in industries with low barriers to entry because of the high cost of entering the industry. A. True B. False

Question

Business

Mathew Fleming

20 October, 18:13

The logic of industry analysis implies that in industries with high barriers to entry, existing firms will be less profitable than those in industries with low barriers to entry because of the high cost of entering the industry. A. True B. False

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Answers (1)

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Rene Wolfe · Answer 1

The answer is False.

Explanation:

Existing firms in industries with high barriers to entry makes more profit than industries because:

1. High barriers to entry make it difficult for firms to enter the market or industry. The number of seller can be one (in the case of monopoly) or few (in the case of oligopoly) and there are many buyers. So this makes them to enjoy the goodwill whereas industries with low barriers to entry witness many sellers coming in and competing with one another and this stiff competition drives price low.

2. Industry with high barrier to entry sets their price. Monopolist or Oligopolist (example OPEC) sets their price. They set the price that will make them profitable and the price that will cover their variable and fixed costs, whereas in industries with low barriers to entry, the sellers trade or sells at a price determined by the market condition which might not be favorable.