Briefly Discuss Why So Many More Firms Are Created Than

question 6

Essay

Briefly discuss why so many more firms are created than an industry can support.

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Definitions:

Marginal Revenue

The boost in income achieved by selling one more unit of a product or service.

Marginal Cost

The growth in aggregate expenditure brought about by generating an extra unit of a product or service.

Economic Profit

The difference between total revenue and total costs, where costs include both explicit and implicit costs.

Competitive Firm

A company that operates in a market where it must take the prevailing market price as given because the firm's individual sales do not significantly affect the market price.