A firm producing electric vehicles, discovers a cheaper and more reliable source of battery power for its vehicles. How will the supply curve of the firm react to this development?
Answer & explanation
Correct answer: option 1
The correct answer is Option 1: Supply curve will experience rightward shift
When the firm discovers a cheaper and more reliable source of battery power, it reduces production costs. Lower production costs lead to:
1️⃣ Increased Profitability → Since it is now cheaper to produce each unit, the firm can produce and sell more vehicles at the same price.
2️⃣ Rightward Shift of the Supply Curve →
- Since production is more cost-efficient, the firm is willing to supply more at every price level.
- A rightward shift in the supply curve means higher supply at the same price or lower price for the same quantity.