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.

Question

Quizplus · Accepted Answer

When managers observe falling profits in a competitive market, it is likely due to the entry of new firms. As more firms enter, the competition increases, leading to a decrease in profits for existing firms. This is a normal occurrence in a competitive market and not a violation of conventional market forces. Over-investment or too few firms in the market may also impact profits, but they are not the most likely explanation in this scenario.

When Managers of Firms in a Competitive Market Observe Falling