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# If a firm in a market with no entry or exit barriers raises its prices

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Re: If a firm in a market with no entry or exit barriers raises its prices [#permalink]
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I dont think OA can be correct here. Answer must be C. How can you take advantage of profits?And ya, just because there is no other error does not mean that we have to force it to be an idiomatic problem. I see most questions quoted as from GMAT Paper tests are of poor quality and have been retired. Anyways, experts know best.
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Re: If a firm in a market with no entry or exit barriers raises its prices [#permalink]
GMATNinja
GMATNinja2
VeritasPrepBrian
AjiteshArun
Hello Experts,

what's the problem with C?

TIA
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If a firm in a market with no entry or exit barriers raises its prices [#permalink]
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Expert Reply
nikitamishra25 wrote:
GMATNinja
GMATNinja2
VeritasPrepBrian
AjiteshArun
Hello Experts,

what's the problem with C?

TIA

Hi nikitamishra25,

Let's try to find something that the noun advantages in option C can refer to. There are three things before abnormal profits:
1. no entry barriers
2. no exit barriers
3. a firm raising its prices above marginal cost

None of these three things is a good fit for advantages. The first two are disadvantages for the existing firm, and if we assume that they are advantages for potential rivals, those rivals would have already entered the market. That is, the intended meaning is that there is some reason (advantages, or better, reason/opportunity) for potential rivals to enter a market, but the first two characteristics are not new, and therefore, we don't expect them to trigger market entry.

We can read the sentence like this: in a market with characteristics A and B, if a firm adopts strategy X (raising prices above marginal cost), an advantage will be created (abnormal profits). This means that the only reason (trigger) in the sentence for potential rivals to enter the market is abnormal profits.

Notice how I used the word advantage to refer to abnormal profits. You can take the same call: would you say "Our firm earns abnormal profits. This is an advantage." or would you say "Our firm earns abnormal profits. These are advantages."? We must go with the first one: abnormal profits are an advantage (we can't refer to abnormal profits as "advantages"). Potential rivals will enter the market to take advantage of just one thing: abnormal profits. This means that there is nothing for the plural noun advantages in option C to refer to.
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Re: If a firm in a market with no entry or exit barriers raises its prices [#permalink]
Expert Reply
nikitamishra25 wrote:
GMATNinja
GMATNinja2
VeritasPrepBrian
AjiteshArun
Hello Experts,

what's the problem with C?

TIA

Hello nikitamishra25,

We hope this finds you well.

To answer your query, in the sentence formed by Option C, there is no noun that "advantages" can logically refer to, so Option C produces an incoherent meaning.

We hope this helps.
All the best!
Experts' Global Team
Re: If a firm in a market with no entry or exit barriers raises its prices [#permalink]
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