Chapter 9, Problem 24AA

To determine

To state: The condition when the barriers to entry suddenly jumped up in a perfect competition market.

Answer to Problem 24AA

When new firms enter the market, it leads to the fall in the demand and thus prices also fall.

Explanation of Solution

When new firms come in the market, in a perfect competition, the demand of the product starts to decrease because there are many sellers present. When demand falls, prices also fall which causes the earnings of the firms to decrease. Thus, if we see from the long- term point of view, the sellers eventually make normal profits or nil profits.

Economics Concept Introduction

Introduction: Perfect competition is a condition where there are many buyers and sellers selling homogeneous products in the market.