Q. 11

How does an increase in the number of firms in a market affect the market supply curve?

Answer :

Supply represents the amount of a service or good which a supplier gives to the market. One of the factors affecting sellers’ willingness or capability of producing as well as selling a good is number of firms or suppliers in a market. As more firms gain entry into the industry, the market supply curve tends to shift outward driving the prices down. This market supply curve, thus, shifts to the right since there will exist more number of firms that supply more quantity of output, and represents the horizontal summation of individual supply curves.


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