Consider the two graphs below. Graph A represents a typical firm in a purely competitive industry. Graph B represents the supply and demand conditions in that industry. The dashed horizontal line represents the current market price for firms and for

the industry. In the long run, what will happen to price, profit, the supply curve, and the number of firms in the industry?

What will be an ideal response?

At the current market price, firms are experiencing economic losses because the market price is less than the minimum ATC. The economic losses will drive some firms out of the industry, leading to a decreased supply in the industry, so the supply curve will shift to the left. This change will increase the market price so the MR line will rise until it just equals the minimum ATC, thus eliminating the economic losses.