Answer to Question #84152 in Macroeconomics for JEEV

Question

Assume, in an industry where firms are making an economic profit, the creation of an internet platform has broken down all entry barriers and resulted in a huge increase in the number of firms entering the industry. What will be the implication on profit to the existing firms in this industry? Support with graphical demand and supply analysis.

Answer 1

Assume, in an industry where firms are making an economic profit, the creation of an internet platform has broken down all entry barriers and resulted in a huge increase in the number of firms entering the industry. As a result the new firms will enter the market, the supply will increase and the market price will decrease, so the profit of the existing firms in this industry will decrease until all firms in the industry receive zero profit.