What effect does the entry of new firms in a monopolistically competitive market have on the economic profits of existing firms in the market? How might existing firms attempt to counteract this effect?
What will be an ideal response?
New firms entering an industry cause the demand curves for the products of existing firms to shift to the left. Existing firms will be able to sell less at every price, so their profits will decline. If existing firms can find new ways to differentiate their products or find new ways to lower their cost of production, they have a better chance of maintaining profits as other firms enter the market.
You might also like to view...
The main source of government funding is
A) user fees. B) taxes. C) borrowing. D) transfer payments.
By the year 2035, the percentage of the U.S. population over 65 years old is expected to: a. increase substantially. b. increase minimally. c. decrease minimally
d. decrease substantially.
Contractionary monetary policy tends to:
A. raise U.S. prices, make exports cheaper relative to imports, and raise the value of the dollar. B. raise U.S. prices, make exports more expensive relative to imports, and lower the value of the dollar. C. lower U.S. prices, make exports cheaper relative to imports, and raise the value of the dollar. D. lower U.S. prices, make exports more expensive relative to imports, and lower the value of the dollar.
Consider an economy where the only goods traded are coconuts and pineapples. Last year, 100 coconuts were sold at €1 apiece, and 200 pineapples were sold at €2.50 apiece. If the money supply was €100, what was velocity?
A. 30 B. 15 C. 6 D. 5