In considering its competition, a firm must assess the likelihood of new entrants. Additional producers in the marketplace typically:
A)reduce industry capacity and raise prices.
B)increase industry capacity and raise prices.
C)increase industry capacity and lower prices.
D)reduce industry capacity and lower prices.

Question

Quizplus · Accepted Answer

The entry of new producers in a market leads to an increase in industry capacity, which can lead to lower prices due to increased competition. This is because new firms entering a market will typically attempt to gain market share by offering lower prices or differentiated products, forcing existing firms to lower their prices in response. Thus, the correct answer is choice C: new entrants typically increase industry capacity and lower prices.

In Considering Its Competition, a Firm Must Assess the Likelihood