From the information gathered above, it is exceptionally wise to stop the new competitor from entering the market for the reasons outlined below.
A Monopoly market has advantages such that because of the very high profits, the organization can carry out extensive research and development. This could be vital because many avenues of growth and tapping more profound into the market can be realized. Improved product quality could also be achieved. Tapping more profound into the market would mean increased production, which would lead to lower production costs. This can be passed on to the end-users at low consumer prices.
Initially, the firm benefits from being a monopoly in selling the games. This assures a monthly earning of 6000$ a month.
Monthly income 50*120=6000$
If the new competitor is prevented from entering the market, then one game’s cost must be reduced to 40 $ a month, and the units increased to 150 a month. This would translate to a monthly income of 6000$ a month, just like before.
New monthly income 40*150=6000
With the new cost of games and 150 units being produced, the monthly income remains the same while still edging out the competition. This then decides to stop the competition a sound one, and the company would continue to enjoy the many benefits of being a monopoly.
However, the firm would be forced to put in more work to ensure that they produce more games for the same period as opposed to the monopoly. On the other hand, the increased output would typically bring along some overhead costs in terms of increased staff and/or working hours. In this case, however, the cost of production is fixed at 20$, and the assumption made is that additional charges to cover the extra games will not be incurred. This makes the option to lock out the completion even more appealing to the current monopoly.
However, the monopoly poses some disadvantages to the end users because then the producers can harass the consumers in terms of quality of the product, supply, and consumer product price. It is for this reason that many consumer markets prefer oligopolistic markets where the number of producers is small but at least more than just one. This makes the call and producers more or less self-regulating because of competition. It also ensures quality products for the consumer and some sense of choice while allowing the producers to enjoy a large market.
In conclusion, therefore, the best option for the game firm is to increase production, lower the consumer price, and lock out the new market entrant. This would secure the firm’s monthly income at no additional cost and help the firm penetrate deeper into its current market with increased production. Allowing the other firmly into the market would mean reduced sales of 80 games a month and at a reduced price. This would also mean that the current monopoly would have to take a cut in its monthly income to 30*80=2400$ a month. This is a decrease in the monthly pay off by a whopping 3600$. Obviously, allowing the new firm to come in would be too high a price to pay for the current monopoly and should be avoided at all costs.