Question

Suppose there are 100 identical firms in the market and the luggage industry is perfectly competitive. What does the market supply curve look like? 20 19 18 17 16 15 14 13 12 11 A 10 20 19 18 17 16 15 14 13 12 11 A 10 8 7 5 2 1 0 1 0 0 1 2 3 4 5 6 7 8 9 10 11 12 4 5 6 7 8 9 10 11 12 0 1 2 3 9 9 (a) (b) 20 19 18 17 16 15 14 13 12 11 A 10 9 8 7 6 20 19 18 17 16 15 14 13 12 11 10 Q29 2 9 8 7 5 6 4 3 0 300 100 900 800 400 500 600 O 008 006 200 200 1000 1100 1200 1000 1100 1200 Q (c) (d) panel (a) O panel (b)

Answer 1

Answer -

Option (b) is correct.

Explanation -

As there is free entry and exit of new firms in case of perfect competetion ,the existence of profitablity in particular industry attract new firms in the market .As new firm enters in the market some share of market contributed by them ,so the market supply curve shifts to the right ,price and profits of the existing firms will also decrease.