If an industry is highly profitable, new firms are likely to enter the market. This would be reflected with a shift of the
A- demand curve to the right
B-supply curve to the right
C-supply curve to the left
D- demand curve to the left
What do you think when more firms enter the market, will there be more suppliers? Will the price go higher or lower? Draw the supply demand curve and predict the new price (in a competitive market).
If an industry is highly profitable, new firms are likely to enter the market. This means that the number of suppliers in the industry would increase.
To determine how the entry of new firms would affect the relevant curves, we need to consider the basic principles of supply and demand.
The demand curve shows the relationship between the price of a product and the quantity of that product that consumers are willing and able to purchase. It slopes downward, indicating that as the price decreases, the quantity demanded increases, ceteris paribus (all other factors being constant).
The supply curve, on the other hand, shows the relationship between the price of a product and the quantity of that product that suppliers are willing and able to produce and sell. It slopes upward, indicating that as the price increases, the quantity supplied also increases, ceteris paribus.
In this case, the entry of new firms into a highly profitable industry would increase the supply of the product. More firms entering the market means there are more producers and suppliers competing with each other. This increased competition would typically result in a larger quantity of the product being supplied at each price level.
Therefore, the correct answer is B - a shift of the supply curve to the right.