Why does entry into markets decrease firm profits


Discussion questions:

1 What are the factors of production and what role do they play in Economics?

2 A natural monopoly occurs when there are large-scale economies in production, so the market can support only one firm. In the light of the above statement, please explain the concept of controlling market power and anti-trust and regulation. How does the government use anti-trust policies to break up some dominant firms? Cite examples to support your answer.

3 Why do perfectly competitive firms make zero economic profit in the long run?

4 Explain why a monopolist must lower its quantity relative to a competitive market to maximize its profits.

5 How do barriers to entry create market power? Why does the government grant patents to companies that research new drugs?

6 Why does entry into markets decrease firm profits and what is "monopolistic" about monopolistic competition?

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Microeconomics: Why does entry into markets decrease firm profits
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