Entry not only shifts the demand curve downward, it will also tend to make demand more elastic. The presence of more firms means more close substitutes hence more elastic demand.

    Due to entry the firm faces D3 and MR3. The new long run equilibrium price P3 is lower and output Q3 is greater than the original long run equilibrium values of P* and Q* because D3 is a more elastic demand curve. Entry has led, as expected, to zero profit in the new long run equilibrium.

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