The correct option for given situation where the effect on existing firm due to entry of new firm in
Answer to Problem 13MCQ
Option b is correct answer.
Explanation of Solution
Explanation for correct option:
b.
If the firm is entering the perfectly competitive industry which is cost constant then each firm entering the industry will affect the level of production of existing firm and the price of the product. In given case, prices will fall and production of existing firm will decrease. Therefore, option b is correct.
Explanation for incorrect options:
a.
If production is increased then supply will be increased due to which existing firm will incur losses in long-run. Therefore, option a is incorrect.
c.
The prices will not rise as the new firm will offer similar products in the existing market which will try to promote its sales by using various marketing techniques. Therefore, option c is incorrect.
d.
Prices will reduce as the new firm is entering the cost constant industry. This will force other firms to reduce the production so that
e.
The prices of the products will be decreased if new firm is entered in the perfectly competitive cost constant industry. Also, the existing firms are required to reduce their level of output as new firm will also deliver some output to meet consumer demands. The products sold in such industry are same which will increase the competition level in the market. Therefore, option e is incorrect.
Chapter 11R Solutions
Krugman's Economics For The Ap® Course
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