When entrepreneurs develop new products, other companies also experience growth because they:

• A. lose market share and are forced to exit the industry
• B. can benefit from increased demand for complementary goods and services
• C. must reduce their prices to compete
• D. are required by law to adopt the new products

Answer: (B)

Verified step by step guidance

1. Understand the context: When entrepreneurs develop new products, it can affect other companies in the market in various ways. The question asks why other companies experience growth as a result.
2. Analyze each option: - Losing market share and exiting the industry implies a negative effect, not growth. - Reducing prices to compete usually reduces profit margins, which is not growth. - Being required by law to adopt new products is a regulatory effect, not necessarily growth.
3. Focus on the correct economic concept: New products often create or increase demand for complementary goods and services. Complementary goods are products that are used together with the new product, so when the new product's demand rises, the demand for these complementary goods also rises.
4. Formally, if the demand for a new product increases, the demand curve for complementary goods shifts to the right, leading to growth opportunities for companies producing those complementary goods.
5. Therefore, the reason other companies experience growth is because they can benefit from increased demand for complementary goods and services, which is a positive external effect of innovation.