Entry of a second firm will result in a downward shift in the ATC curve.

Question

Quizplus · Accepted Answer

The entry of a second firm in a market will not necessarily result in a downward shift in the ATC (average total cost) curve. The ATC curve is primarily affected by the economies of scale and scope that a firm can achieve as it increases production. If these economies are significant, a firm may see a decline in its average costs as it increases output. However, the entry of a second firm may not necessarily result in a decrease in overall industry production or a change in the ability of firms to achieve economies of scale, thus leaving the ATC curve unchanged.

Entry of a Second Firm Will Result in a Downward