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Answer to Problem 5MCQ
(b) The short-run industry supply curve will shift right.
Explanation of Solution
When a firm earns a positive profit in a perfectly competitive market then the short-run industry supply curve will shift right because a positive profit will attract a new firm which leads to a new entrant of firms. As a result, several firm increases lead to an increase in industry supply that shifts the short-run industry curve to the right. Hence, option (b) is correct, and (a) and (c) are incorrect.
As new firms enter due to a positive profit, the supply curve shifts rightward which reduces the equilibrium market price and quantity of each firm. Hence, options (d) and (e) are incorrect.
Introduction:
In a perfectly competitive industry, there is a large number of buyers and sellers, and a firm can sell as much as output at a market-determined price. In the short run, the firm may earn a positive profit and a negative profit. If the firm earns a positive profit, then the new firm will enter and when the firm suffers a loss then the existing firm will leave the market.
Chapter 60 Solutions
Krugman's Economics For The Ap® Course
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