In a market, only two firms operated: firm A and firm B. After a certain period of time, two more firms entered the market - Firm A and Firm B. What do you think will happen to the market supply curve?
Answer & explanation
Correct answer: option 1
The correct answer is Option 1: Shifts right
The market supply curve represents the total quantity of a good supplied by all firms in the market at different price levels.
- Initially, only two firms (Firm A and Firm B) were supplying in the market.
- When two more firms enter the market, the total market supply increases because more firms are producing and supplying goods.
- An increase in the number of firms leads to a rightward shift in the market supply curve.