When new sellers enter a market, existing sellers will:
A)have less market power.
B)face reductions in average cost.
C)see average revenue rise.
D)face upward shifts in their average cost curves.

Question

Quizplus · Accepted Answer

With the entry of new sellers, the market becomes more competitive and existing sellers will have to compete with the new entrants for market share. This reduces their market power, i.e., their ability to influence prices and output in the market. Therefore, option A is the correct choice. Option B is incorrect because there is no reason to assume that the entry of new sellers would lead to a reduction in average cost for existing sellers. Option C is incorrect because the entry of new sellers could potentially lead to a decrease in the average revenue for existing sellers if they are forced to lower their prices to remain competitive. Option D is incorrect because there is no reason to assume that the entry of new sellers would lead to an upward shift in the average cost curve for existing sellers.

When New Sellers Enter a Market, Existing Sellers Will