Multiple Choice
In a competitive market with two firms, which of the following best describes the outcome in the long run?
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3. The Market Forces of Supply and Demand
Competitive Markets
Multiple Choice
Which of the following does NOT occur when a new entrant enters a competitive marketplace?
A
Equilibrium price tends to decrease
B
Existing firms experience increased competition
C
Barriers to entry become higher
D
Market supply increases
Verified step by step guidance1
Step 1: Understand the concept of a competitive marketplace, where many firms can freely enter and exit the market without significant restrictions.
Step 2: Recognize that when a new entrant enters the market, the total market supply increases because there are more producers offering the good or service.
Step 3: Know that an increase in market supply, holding demand constant, typically causes the equilibrium price to decrease as more goods are available.
Step 4: Realize that existing firms face increased competition because the new entrant adds to the number of sellers, which can reduce market share and profits for incumbents.
Step 5: Identify that barriers to entry are factors that make it difficult for new firms to enter the market; however, the entry of a new firm does not cause these barriers to become higher—in fact, barriers are usually a pre-existing condition, not a consequence of entry.
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