The principle of competition states...

• A. Profits create competition and exercise profits breed competition that tends to destroy these profits.
• B. Competition reduces profits and discourages new entries.
• C. Higher profits guarantee continued market stability.
• D. Market value is determined by supply alone.

Answer: (A)

Profits attract competitors. When a market yields above-normal profits, other firms are drawn to enter or expand, increasing competition. This added competition tends to drive prices down or costs up, eroding those profits until they’re back to normal. In the long run, the market adjusts so no firm can maintain above-normal profits.

Why the other statements don’t fit: competition doesn’t discourage new entries; it actually invites them as profitable opportunities appear. High profits don’t guarantee lasting stability because they attract more entrants, which can push profits down. market value isn’t set by supply alone; it results from the interaction of supply and demand, with prices balancing both.