output level where P = MR = MC.

This will temporarily make the market price rise above the minimum point on the average cost curve, and

therefore, the existing firms in the market will now be earning economic profits. However, these economic

profits attract other firms to enter the market. Entry of many new firms causes the market supply curve to shift

to the right. As the supply curve shifts to the right, the market price starts decreasing, and with that, economic

profits fall for new and existing firms. As long as there are still profits in the market, entry will continue to shift

supply to the right. This will stop whenever the market price is driven down to the zero-profit level, where no

firm is earning economic profits.

Short-run losses will fade away by reversing this process. Say that the market is in long-run equilibrium. This

time, instead, demand decreases, and with that, the market price starts falling. The existing firms in the
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