The decrease in demand shifts the demand curve leftward, causing a decrease to equilibrium price. Hence, the firms will break-even.ĭecrease in Demand: Suppose the firm’s profit is breaking even. The MR \, curve shifts down until p > ATC. Thus, the MR curve (p) \, shifts back down. This causes firms to enter the market, which will shift the supply curve rightward and decrease equilibrium price. The supply curve keeps shifting rightward until p = ATC \, In this case, the firms break even.Įxit: Firms will only exit the market if they are incurring economic loss ( p ATC, so there is an economic profit. This causes the equilibrium price to decrease, which also causes the MR curve When firms enter the market, they increase the supply, shifting the supply curve rightward. In the long run, firms will always end up breaking even.Įntry: Firms will only enter the market if firms in the market are making economic profit ( p > ATC). Recall in the short-run, firms can either have economic loss, economic profit, or break-even.
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