Suppose that the market for haircuts in a community is a perfectly competitive constant-cost industry and that the market is initially in long-run equilibrium. Subsequently, an increase in population increases the demand for haircuts. In the long run, we expect that:

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In a perfectly competitive constant-cost industry, an increase in demand will lead to an increase in price in the short run. However, this will also lead to profits for firms in the market, which will attract new firms to enter the market in the long run. As new firms enter, the supply of haircuts will increase, driving the price back down to the original long-run equilibrium price. Therefore, we expect that more firms will enter the market, driving the price of haircuts down and the profits of individual firms back down to zero.

Suppose That the Market for Haircuts in a Community Is