When new firms have an incentive to enter a competitive market,which effect will their entry have

Question

Quizplus · Accepted Answer

The entry of new firms in a competitive market will increase the supply of the product, shifting the market supply curve to the right. This increase in supply will eventually lead to a decrease in price and profits of the existing firms in the market as they have to compete with the new entrants. This happens because the new firms bring in more competition, which leads them to set a lower price to attract customers. Hence, option B is the correct option.

When New Firms Have an Incentive to Enter a Competitive