Final answer:
The correct response is 'quantity supply.' As profits for toilet paper rise, firms are likely to increase the quantity supply for napkins, a related good, to cater to the market's needs according to the law of supply.
Step-by-step explanation:
If firms notice that people are stockpiling toilet paper causing profits in that industry to rise, the quantity supply for napkins will increase as firms adjust to market demand. This scenario describes a situation where firms respond to changes in market conditions by adjusting the quantity supplied of a good in relation to its price, a concept known as the law of supply. This law states that a higher price typically leads to a higher quantity supplied. In cases where related goods can serve as substitutes, such as napkins for toilet paper, an increase in demand for one can lead to an increase in supply for the other, provided that firms are responsive and the market supports this shift.
This adjustment by manufacturers indicates that they are looking to capitalize on the increase in demand for similar goods, an indicator of a closely aligned product market and profit-seeking behavior. However, it's important to distinguish between an increase in the 'quantity supplied' and a shift in the 'supply' curve itself. The 'quantity supplied' increases because of a higher price or demand for the good itself, whereas a 'supply' curve shift would result from changes in other factors, like production costs or technology advancements, aside from the good's price.