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

industry are now facing a lower price than before, and as it will be below the average cost curve, they will now

be making economic losses. Some firms will continue producing where the new P = MR = MC, as long as they

are able to cover their average variable costs. Some firms will have to shut down immediately as they will not

be able to cover their average variable costs, and will then only incur their fixed costs, minimizing their losses.

Exit of many firms causes the market supply curve to shift to the left. As the supply curve shifts to the left, the

market price starts rising, and economic losses start to be lower. This process ends whenever the market price

rises to the zero-profit level, where the existing firms are no longer losing money and are at zero profits again.
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