The entry of an additional firm into a market decreases the profit per unit of output because entry decreases the price.

Question

Quizplus · Accepted Answer

When a new firm enters the market, it increases the supply, which leads to a decrease in the price of the product. As a result, each firm operating in the market earns a lower profit per unit of output. This is because the competition increases, and firms have to lower prices to maintain their market share. Therefore, the entry of an additional firm into a market decreases the profit per unit of output.

The Entry of an Additional Firm into a Market Decreases