Entry by competitive firms decreases the market price, while exit by competitive firms increases the market price. Explain why firms enter or exit an industry and why these price changes occur

What will be an ideal response?

Competitive firms will enter an industry where economic profits exist in an attempt to make an economic profit. As new firms enter, the supply increases and the supply curve for the product shifts rightward. The increase in supply drives the price lower. Firms exit an industry when economic losses are incurred. As they leave, supply decreases and the supply curve shifts leftward. The decrease in the supply forces the price higher. Entry and exit continue until the remaining firms in the industry are making zero economic profit.