In the long run, if demand increases in a competitive industry that operates under decreasing costs, the industry supply curve will shift to the right. Let's break down the steps to understand why:

1. Start with a competitive industry: A competitive industry consists of many firms that produce similar goods or services and compete with each other for market share.

2. Assume the industry operates under decreasing costs: In a decreasing-cost industry, as the industry expands and production increases, the average cost of production decreases. This can be due to economies of scale, technological advancements, or other factors that lead to cost efficiencies.

3. Demand increases: When demand for the industry's products or services increases, consumers are willing to purchase more at each price level. This leads to a shift in the demand curve to the right.

4. Short-run adjustment: In the short run, individual firms in the industry respond to the increased demand by increasing their production levels. This leads to a temporary increase in price and profits for these firms.

5. Long-run adjustment: In the long run, new firms enter the industry attracted by the higher profits. As more firms enter, the industry's total supply increases, shifting the industry supply curve to the right.

6. Decreasing costs and supply: In a decreasing-cost industry, the entry of new firms leads to further cost reductions. This is because the increased production allows for economies of scale, lower input costs, or other efficiencies. As a result, the industry's supply curve continues to shift to the right.

In summary, in a competitive industry operating under decreasing costs, an increase in demand will lead to a rightward shift in the industry supply curve in the long run. This is due to the entry of new firms attracted by higher profits and the resulting cost efficiencies that come with increased production.

Question

In the long run, if demand increases in a competitive industry that operates under decreasing costs, the industry supply curve will shift to the right. Let's break down the steps to understand why:

1. Start with a competitive industry: A competitive industry consists of many firms that produce similar goods or services and compete with each other for market share.

2. Assume the industry operates under decreasing costs: In a decreasing-cost industry, as the industry expands and production increases, the average cost of production decreases. This can be due to economies of scale, technological advancements, or other factors that lead to cost efficiencies.

3. Demand increases: When demand for the industry's products or services increases, consumers are willing to purchase more at each price level. This leads to a shift in the demand curve to the right.

4. Short-run adjustment: In the short run, individual firms in the industry respond to the increased demand by increasing their production levels. This leads to a temporary increase in price and profits for these firms.

5. Long-run adjustment: In the long run, new firms enter the industry attracted by the higher profits. As more firms enter, the industry's total supply increases, shifting the industry supply curve to the right.

6. Decreasing costs and supply: In a decreasing-cost industry, the entry of new firms leads to further cost reductions. This is because the increased production allows for economies of scale, lower input costs, or other efficiencies. As a result, the industry's supply curve continues to shift to the right.

In summary, in a competitive industry operating under decreasing costs, an increase in demand will lead to a rightward shift in the industry supply curve in the long run. This is due to the entry of new firms attracted by higher profits and the resulting cost efficiencies that come with increased production.

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