How do barriers to entry impact social welfare in a market characterized by monopolistic competition, and what are the broader economic implications?

Barriers to entry are obstacles that make it difficult for new companies to start competing in a market. In a market with monopolistic competition, where many firms sell similar but not identical products, these barriers can reduce social welfare by limiting competition. For example, if a popular coffee shop chain creates a strong brand identity and controls access to prime locations, new coffee shops may struggle to enter the market. This means consumers have fewer choices and may pay higher prices, leading to less overall satisfaction. The broader economic implication is that reduced competition can stifle innovation and lead to inefficiencies, ultimately harming the economy as a whole.