What happens in a competitive industry when more firms enter?
A) Demand decreases and the price declines, which in turn lowers profits.
B) Supply increases and the price declines, which in turn lowers profits.
C) Supply increases and the price rises, which in turn raises profits.
D) Demand increases and the price rises, which in turn raises profits.

Question

Quizplus · Accepted Answer

When more firms enter a competitive industry, the supply of goods or services increases, resulting in a lower market price. As a result, profits for all firms in the industry decrease. If demand remains constant, the increased supply would lead to excess supply and lower prices. This may lead to some firms exiting the industry due to low profitability.

What Happens in a Competitive Industry When More Firms Enter