From the standpoint of the original firm, entry by other firms into the industry would shift its demand curve back because it would lose some sales to the new competitors. Entry would also make demand more elastic because there are now new close substitutes for this firm's output. We've shown this as a shift to D2 and MR2.

    Suppose the original firm was the only restaurant in a small town when a new restaurant opens. Not only would demand for meals at the original restaurant be reduced, customers would certainly become more price sensitive (more elastic demand).

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