Final answer:
The correct answer is option 2. Below $25.
Step-by-step explanation:
The question pertains to the effect of a new entrant in a market that was initially a Cournot duopoly. In the Cournot model, firms decide on output quantity rather than price, but the resulting effect of additional competition typically leads to an increase in the total market supply, which, according to supply and demand theory, would put downward pressure on the market price.
If a new firm enters the market and the three firms coexist, the competition will generally cause the market price to decrease. This is because, with increased supply and assuming demand remains relatively stable, the equilibrium price should fall. Therefore, based on the information provided regarding market structure and competitive dynamics, the correct answer to the question would be Below $25.
In terms of general market theory, and from the information provided, a monopolist decides the price by looking at what the market is willing to pay and maximizing profits within that constraint. However, different from a monopolistic market, where entry barriers protect a firm's profits, the entry of new firms into a market usually triggers a price adjustment to facilitate the maintenance of market shares.