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

Thus, while a perfectly competitive firm can earn profits in the short run, in the long run the process of entry

will push down prices until they reach the zero-profit level. Conversely, while a perfectly competitive firm may

earn losses in the short run, firms will not continually lose money. In the long run, firms making losses are

able to escape from their fixed costs, and their exit from the market will push the price back up to the zero-

profit level. In the long run, this process of entry and exit will drive the price in perfectly competitive markets

to the zero-profit point at the bottom of the AC curve, where marginal cost crosses average cost.

The Long-Run Adjustment and Industry Types

Whenever there are expansions in an industry, costs of production for the existing and new firms could either
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