How does an increase in the number of firms in a market affect the market supply curve?
The market supply curve is derived for a fixed number of firms in the market. It is obtained by taking a horizontal summation of the supply curves of all individual firms.
When the number of firms in the market increases, the market supply curve shifts to the right. This is because more firms contribute to the total market supply, resulting in greater output being supplied at each price level. The horizontal summation now includes additional supply curves of the new firms.
Conversely, if the number of firms decreases, the market supply curve shifts to the left. Thus, any change in the number of firms causes a shift in the market supply curve.
Explanation
The textbook explicitly states that the market supply curve is derived for a fixed number of firms, and when the number of firms increases, the market supply curve shifts to the right. This is because market supply is the sum of individual firm supplies, so more firms means more total supply at each price.