Reference no: EM132244020

Suppose the market demand and supply functions are Q

D

=2380-5P

QD=2380-5P  and Q

S

=12P+1785

QS=12P+1785. You have just graduated and moved to this city; as a new MBA and an entrepreneur, you are considering entering the market for this product.

Due to unforeseen delays, you don't enter the market. However, a year later the market supply has changed to Q

S

=14P+1639

QS=14P+1639. Are you surprised at this shift in supply?

Select one:

a. No; the profits that were earned in the previous question suggest that some new firms would enter. This entry would shift supply right, which is what the new supply curve did.

b. Yes; the losses earned earlier should have increased supply whereas this new equation shows a decrease in supply.

c. Yes; the earlier profits should have caused mergers among firms, reducing the number of suppliers and thus supply itself (curve should shift left), though the new supply curve has actually increased (shifted right).

d. No; the losses incurred under the old supply curve would cause some existing sellers to exit, shifting supply to the left (which is what this new supply curve did).