Answer to Question #145355 in Macroeconomics for Amogelang Moiteela

Question

Show through the use of a diagram for the market (4 marks) and individual firm
(4 marks) the point as which firms stop entering the market. This applies to the
Long run position for the perfectly competitive market. Provide detailed
discussion of the diagrams.

Answer 1

As new firms enter, the supply curve shifts to the right, price falls, and profits fall. Firms continue to enter the industry until economic profits fall to zero. If firms in an industry are experiencing economic losses, some will leave. The supply curve shifts to the left, increasing price and reducing losses.