Question

When managers of firms in a competitive market observe falling profits, they may infer that the market is experiencing a. a violation of conventional market forces. b. over-investment. c. the entry of new firms. d. too few firms in the market.

Answer 1

Answer:

c. the entry of new firms

Explanation:

• The entry of the new firms in the market creating a  market supply curves to shift to the right side and as the curve shifts the markets price then starts to decline with it  

• This declines the economic profits in the new and the existing firms as long as the profits exists  in the markets and entry will continue to shift to supply to the right.

• The diversification of the melt and the fall in the monopoly of the firms start to take place.  

• They take up resource ownership and technological developments. In short, they increase the competitiveness and bring rivalry into the market.