Under which market structure is it generally easier for a new firm to enter the market, and why?

• A. Monopolistic competition, because there are few barriers to entry and firms can differentiate their products.
• B. Oligopoly, because there are no barriers to entry and products are identical.
• C. Monopolistic competition, because existing firms collude to keep prices high for new entrants.
• D. Oligopoly, because firms in this market structure encourage competition to increase market efficiency.

Answer: (A)

Verified step by step guidance

1. Identify the key market structures mentioned: monopolistic competition and oligopoly.
2. Recall the characteristics of monopolistic competition: many firms, product differentiation, and low barriers to entry.
3. Recall the characteristics of oligopoly: few firms, significant barriers to entry, and potential for collusion.
4. Understand that ease of entry depends largely on the presence or absence of barriers to entry and the ability to differentiate products.
5. Conclude that monopolistic competition generally allows easier entry for new firms because of low barriers and product differentiation, unlike oligopoly where barriers are high and firms may collude.