Rising barriers to entry in an industry typically lead to:

• A. Profitability tends to increase due to fewer new entrants entering the market.
• B. Profitability tends to decrease due to higher research costs.
• C. Profitability remains unchanged regardless of barriers.
• D. Profitability fluctuates with currency exchange rates alone.

Answer: (A)

Rising barriers to entry reduce the threat of new competitors entering the market. With fewer firms able to enter, incumbents face less competitive pressure, which helps them maintain higher prices, protect market share, and leverage existing cost advantages. That combination tends to lift profitability for the players already in the industry because they can sustain larger profit margins in the face of less threats from new entrants.

Other possibilities don’t fit as well because profitability isn’t mainly determined by higher upfront R&D costs from barriers, nor is it kept constant regardless of how hard it is to enter, and currency movements alone don’t drive industry profitability.