How is the industry supply curve of a perfectly competitive industry constructed?
Because firms will not supply anything if the price is below the AVC curve, the firm s supply curve is the MC curve (as we saw in the last chapter) that is above the AVC curve. The individual supply curves for each firm are then added up horizontally, producing the industry supply curve. 6. Why do perfectly competitive firms not make any profit in the long run? If there are any profits to be made in an industry, other firms will enter and increase the market supply, lowering price until profits disappear. When there are no more profits to be made, no more firms enter the market. If the industry is losing money, then firms leave the industry, driving the supply curve back, and, thus, raising prices. Prices rise until profits are zero, after which no more firms want to leave the industry. Profits or losses are never sustained in the long run. However, when firms are breaking even, they are still earning a normal rate of return. 7. Why is zero economic profit not such a bad thing? Zero ec
