Question

Why does entry occur?

Short answer

Entry takes place due to supernormal profit in the industry.

Step-by-step solution

Entry occurs :

It's also possible for new enterprises to start up. When new firms enter an industry in response to high profits, the word "entry" is used. If a firm is losing money in the short term, it will either keep operating or shut down, depending on whether or not its sales cover its variable expenses.

Explanation :

Supernormal profit occurs when a company earns more than its whole cost of production. If current businesses in the sector make a higher-than-normal profit in the short run as a result of market demand circumstances, new firms may be enticed by the profit and eager to enter the industry to do business and gain profit. New enterprises will enter the industry in the long run, increasing the supply of the homogenous item. The increase in supply will reduce the market price if the demand situation remains unchanged. The supernormal profit will be eroded as a result of this. The process will continue until all of the industry's supernormal earnings have been wiped away and all businesses are making normal profits. The entry will also come to a halt.