ABSTRACT
The new firm has a central place in economics. It represents a real or imagined threat to firms currently producing goods and services within a given industry. According to economic theory, perfect and imperfect competitive markets have substantial numbers of potential producers patiently waiting for prices in that industry persistently to exceed long run average costs. Once this happens new firms will enter the market and produce output as technically efficiently as existing firms. This threat disciplines firms currently in the industry to produce output in the most technically efficient manner, and to sell it at a price which in perfect competition will yield only normal profits in the long run.
