In the long run, profitability of the existing firms encourages:
A) the exit of existing firms and therefore the demand for existing firms will increase.
B) the entry of new firms and therefore the demand for existing firms will decrease.
C) the entry of new firms and therefore the demand for existing firms will increase.
D) the entry of new firms and therefore the demand for existing firms will stay the same.

Question

Quizplus · Accepted Answer

In the long run, profitability of existing firms signals potential profits for new entrants, encouraging the entry of new firms into the market. This increased competition can lead to a decrease in demand for the products or services of existing firms as consumers have more options to choose from.

In the Long Run, Profitability of the Existing Firms Encourages