In a perfectly competitive industry, i. entry by new firms shifts the market supply curve rightward.
Ii. exit by existing firms shifts the market supply curve leftward.
Iii. at all times existing firms make only zero economic profit.

Question

Quizplus · Accepted Answer

Entry by new firms will increase the number of firms in the market, which will increase the market supply and shift the supply curve rightward (i). Exit by existing firms will reduce the number of firms in the market, which will decrease the market supply and shift the supply curve leftward (ii). In the long run, firms in a perfectly competitive industry will earn only zero economic profit due to free entry and exit (iii). Therefore, statements (i) and (iii) are true, but statement (ii) is partially true as it only describes the effect of exit on the market supply curve.

In a Perfectly Competitive Industry, I