Consider a competitive industry in which firms are facing a continual decrease in demand for their product.In the long run

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With a continual decrease in demand for the product, firms will not be able to earn normal profits, and new firms are unlikely to enter the industry. Advertising may have limited effect if the issue is a shift in consumer preferences or a decrease in overall demand. Modernizing plant and equipment may increase efficiency but will not necessarily increase demand. Expanding output may lead to even greater losses if there is no demand for the product. Gradual shrinkage of capacity in the industry is the most likely outcome in the long run as firms are not able to cover their costs and cannot justify replacing or expanding their plant and equipment.

Consider a Competitive Industry in Which Firms Are Facing a Continual