![]() This influx of firms will shift the market supply to the right and will cause price to fall below the short-run equilibrium level (P). In the long run the excess profits made by the established firms will attract new firms into the industry. Price will rise (to P’ in figure 5.18) and the quantity supplied will increase (from Q to Q’ in figure 5.18) by an expansion of the production of the existing firms (from X to X’ in figure 5.19), which will be realizing excess profits at the higher market price (equal to the area ABCP’). In the short run the supply curve is given. ![]() Assume that the market demand shifts to the right due to an increase in consumers’ income (or to a change in the other determinants of market demand, e.g.
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