When New Firms Have an Incentive to Enter a Competitive

question 116

Multiple Choice

When new firms have an incentive to enter a competitive price-taker market, their entry will

• A) increase the price of the product.
• B) drive down profits of existing firms in the market.
• C) shift the market supply curve to the left.
• D) increase demand for the product.

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Definitions:

Complementary Goods

Products or services that are consumed together because the use of one enhances the use of the other.

Cross-Price Elasticity

A measure of the responsiveness of the demand for one product in relation to a change in the price of another product.

Substitutes

Products or services that can be used in place of each other, fulfilling the same need or purpose.

Cross-Price Elasticity

A measure indicating how the demand for one good responds to a change in the price of another good, showing whether they are substitutes or complements.