Question

What are the three types of reactions a business can have to a new competitor?

1) Ignore the competitor and continue with current strategies
2) Analyze the competitor's strengths and weaknesses and adjust strategies accordingly
3) Launch a counterattack to gain a competitive advantage
4) Collaborate with the competitor to form a strategic partnership

Answer 1

Businesses can react to new competitors by ignoring them and sticking to current strategies (option 1), by analyzing the competitor's strengths and weaknesses to inform strategy adjustments (option 2), or by launching a counterattack to gain a competitive edge (option 3).

Step-by-step explanation:

When a monopolistic competitor earns positive economic profits, it can lead to market entry by other firms, intensifying competition. Businesses can react to new competitors in several ways:

1. Some may ignore the competitor and continue their current operations without making any changes. This approach assumes that their existing strategies are robust enough to withstand new competition without any adjustments.
   
2. Others may opt to analyze the competitor’s strengths and weaknesses and adjust their strategies accordingly. Understanding what the new competitor is offering can help an existing business improve its offerings or find new niches to maintain its market share.
   
3. Finally, a business might decide to launch a counterattack, perhaps through marketing campaigns, improved services, or lower prices, to gain a competitive advantage over the new entrant.
   

Each of these reactions will depend on the unique circumstances of the market and the firms involved.