Answer to Question #63781 in Microeconomics for Sagar Bidari

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? Use graphical demand and supply analysis to support your explanation

Answer 1

If 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, then the profit to the existing firms in this industry will decrease, because there will be an increase in supply (supply curve will shift rightward), which will cause the increase in output and decrease in market price.