In a perfectly competitive market, if a new firm enters the market facing high barriers to entry, how would this impact the marginal revenue and economic profits of the existing firms?

In a perfectly competitive market, if a new firm enters and there are high barriers to entry, it often means that the existing firms have a strong hold on the market. This situation can lead to a decrease in the economic profits of the existing firms because competition usually drives prices down. As new firms enter, they can increase the overall supply of goods, which can lower the market price. For example, if a new bakery opens in a town with only one existing bakery, the new bakery will attract some customers, forcing the original bakery to lower its prices to keep its customers. As a result, the marginal revenue for the existing firms decreases, and their economic profits may shrink or even turn negative if prices fall below their average costs.