If a perfectly competitive market experiences an increase in demand, leading to higher prices and profits, what is the primary underlying cause of firms entering the market in response?

In a perfectly competitive market, when demand increases, it causes prices to rise. This higher price means that existing firms can earn more profit, which attracts new firms to enter the market. The primary reason for this is the opportunity to make money; if firms see that they can sell their products for a higher price, they want to be a part of that success. For example, if a bakery starts selling more cookies at a higher price, other bakers may decide to open their own bakeries to also take advantage of the increased profits. As more firms enter the market, the competition increases, which eventually brings prices back down to a normal level.