Topic > Pure and perfect competition: analysis of the perfect...

A loss is not guaranteed to be permanent and three assumptions must be made. First, entry and exit represent only long-run adjustments. In industry, firms will have the same cost curves, just as industry will have a constant scale of return. With the economic profits earned, companies enter the industry which will cause an increase in market supply resulting in a decrease in prices. Just like anything, if you suffer losses in the short term, businesses will leave, decrease market supply, and drive up the price until all losses are covered. Until economic profits are made, supply will remain stable. This model is considered to be one of zero economic profits in the long run. Achieving long-run equilibrium is achieved when the price of the product is completely equal and drives production at the minimum average total cost point for each product.