When a second firm enters a market, the original firm's profits decline because

Question

Quizplus · Accepted Answer

When a second firm enters a market, it increases the competition, which leads to a decrease in the original firm's price (A), as well as an increase in its ATC due to sharing the fixed costs among more firms (B). This leads to a decrease in profits, which may also result in the original firm decreasing its quantity (C) to maintain profitability. Therefore, all of the above are correct.

When a Second Firm Enters a Market, the Original Firm's