In a small college town, four microbreweries have opened in the past two years. Demonstrate the effect of these new market entrants on demand for incumbent firms (microbreweries) that already served this market. Assume that the local community now places a moratorium on new liquor licences for microbreweries. How will this moratorium affect the long-run profitability of incumbent firms?

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The entrance of four new firms will reduce the demand of incumbent firms leading to a reduction of t... View the full answer