Final answer:
A firm's relative market share below 1.0 suggests a smaller share compared to the industry leader and indicates the firm will supply fewer units at all price levels, leading to a leftward shift of the supply curve due to escalation of competition and possible changes in industry-wide production costs.
Step-by-step explanation:
The relative market share of a firm is indicative of its competitive position relative to the largest player in the industry. A relative market share below 1.0 suggests that a firm has a smaller market share compared to the industry leader. As this market share decreases, the firm will typically be willing to supply fewer units at every price level, which results in the firm's individual supply curve decreasing and shifting to the left. This can happen due to increased competition, which can erode a firm's profit margins and market position.
Competition from firms offering better or cheaper products can significantly impact the business's profits. In monopolistically competitive markets, competing firms that intrude on an original firm's market share can lead to a situation where the original firm experiences a decrease in demand for their product, reducing both price and the level of output to a new equilibrium where no economic profits are earned. This effect can also be influenced by changes in production costs; in a decreasing cost industry, expansions in the market can lead to lower production costs and thus lower prices in the new equilibrium.