Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Existing firms will benefit from lower costs due to increased competition.
B
Existing firms will face higher production costs as resources become scarcer.
C
Existing firms will see no change in production costs regardless of new entrants.
D
Existing firms will exit the market immediately.
Understanding the Answer
Let's break down why this is correct
Answer
When a new technology firm enters a market with increasing costs, existing firms may face several challenges. First, as costs rise, existing firms might struggle to maintain their profit margins since they have to spend more on production, which can lead to higher prices for their products. This situation can make it harder for them to compete with the new firm, especially if the new technology offers more efficient ways to produce or deliver services. For example, if a traditional manufacturing company faces rising material costs but a tech firm uses automation to reduce costs, customers may prefer the tech firm's products. Ultimately, existing firms may need to innovate or improve their operations to stay competitive, or they might risk losing market share.
Detailed Explanation
When new firms enter a market, they use resources that are already limited. Other options are incorrect because Some might think competition lowers costs for everyone; It's a common belief that new firms don't affect existing ones.
Key Concepts
Increasing cost industries
Market dynamics
Supply and demand shifts
Topic
Increasing Cost Industries
Difficulty
easy level question
Cognitive Level
understand
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