Answer to Question #64456 in Microeconomics for Priyashini

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. 5 Marks

Answer 1

Since the inception of Internet platform a number of companies in this industry has increased, which led to that market supply increased, and the market demand has not changed. That is why the market price in the industry declined, so in this situation, the profit of pre-existing companies will decrease.