In the context of competitive markets, what is the result of low barriers to entry in the airline industry?

• A. Increased competition among airlines, leading to lower prices for consumers.
• B. Government regulation preventing new airlines from entering the market.
• C. Decreased number of airlines due to high startup costs.
• D. A single airline dominating the market and setting higher prices.

Answer: (A)

Verified step by step guidance

1. Understand the concept of barriers to entry: These are obstacles that make it difficult for new firms to enter a market. Low barriers mean it is relatively easy for new firms to start operating.
2. Recall the characteristics of a competitive market: Many firms can enter and exit freely, leading to competition that drives prices toward marginal cost.
3. Analyze the airline industry with low barriers to entry: If new airlines can enter easily, more firms will join the market, increasing competition.
4. Consider the effect of increased competition: More airlines competing typically results in lower prices and better services for consumers.
5. Contrast this with high barriers to entry scenarios: High startup costs or regulations limit new entrants, reducing competition and potentially allowing existing firms to raise prices.