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

In a perfectly competitive industry, entry by new firms will increase the number of producers, which will shift the market supply curve rightward, thus increasing competition and lowering prices. Exit by existing firms will decrease the number of producers, shifting the market supply curve leftward, which will decrease competition and raise prices. Also, in the long run, in a perfectly competitive market, firms will only make zero economic profits because entry of new firms eventually drives down prices to the point where only normal profits are made. Therefore, both i and ii are correct while iii is also correct.

In a Perfectly Competitive Industry