What will happen when new firms enter a perfectly competitive market

Question

Quizplus · Accepted Answer

When new firms enter a perfectly competitive market, the supply curve shifts to the right, causing the equilibrium price to fall. As a result, the profits of existing firms will fall, as they must now compete at a lower price. The new entrants may be able to earn a profit initially, but over time, the market will adjust to the new equilibrium price, which will be no more than the minimum level necessary to cover the cost of production. Existing firms may also experience a decrease in demand, but this is unlikely to cause an increase in their costs. Prices are unlikely to increase since the market is perfectly competitive.

What Will Happen When New Firms Enter a Perfectly Competitive