Understanding Market Competition
Increased competition in the market typically leads to several economic consequences, particularly affecting profit margins for businesses. When competitors enter the market or existing competitors become more aggressive, several dynamics come into play.

Impact on Profit Margin
- **Price Wars**: With more players in the market, businesses often lower their prices to attract customers. This can lead to a price war, which directly reduces profit margins.
- **Increased Supply**: More competition usually results in an increased supply of goods or services, leading to lower prices. As prices drop, businesses may struggle to maintain profitability.
- **Customer Expectations**: Consumers may develop higher expectations regarding quality, service, and price due to the variety of options available. To meet these expectations, companies might need to invest more in quality improvements or customer service, further squeezing profit margins.

Cost of Production Considerations
- **Operational Efficiency**: To remain competitive, companies may invest in technology or processes that improve efficiency, potentially increasing initial costs but aiming to reduce long-term expenses.
- **Marketing Expenses**: Increased competition often necessitates higher marketing expenditures to stand out. This can lead to increased costs that do not necessarily translate to higher profits.

Conclusion
In conclusion, while increased competition can lead to innovation and better products for consumers, it generally reduces profit margins for businesses. Companies must adapt to maintain their market position while balancing costs and pricing strategies. Thus, the correct answer to the question is option 'D': Increased competition in the market will reduce the profit margin.