Question

what role does new firm entry play in a competitive market?( as this relates to price and competition)

Answer 1

In the long run new firms will enter a perfectly competitive market if they can earn an economic profit . The increased supply causes the price to fall . As long as an economic profit equals zero. In the long run firms leave a perfectly competitive market if they are suffering an economic loss by existing the price rises and the economic loss of the surviving firms shrinks . Eventually enough firms exit so that the price rises to the point that the survivers no longer incur an economic loss earning instead a normal profit .