# The fact that firms in this industry are earning

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The fact that firms in this industry are earning positive profit will encourage entry into the market. This entry by new firms will drive the market price down until firms earn zero economic profit. At this point, firms not in the industry will have no incentive to enter, and firms in the industry will have no incentive to exit, so the industry will be in long-run equilibrium. Because you know that perfectly competitive firms earn zero economic profit in the long run, you know the long-run equilibrium price must be \$44 per pound. From the graph, you can see that this means there will be 30 firms operating in the copper industry in long-run equilibrium. In the long run, firms will enter the industry if they can earn a positive profit, and firms will exit the industry if they are running at a loss. In long-run equilibrium, firms have no incentive to either enter or exit the industry, which means that firms in the industry must be earning zero economic profit. Total profit—the difference between total revenue and total cost—can be calculated as the difference between the price and average total cost times the quantity of output: . Because average profit per unit is measured by , and because perfectly competitive firms produce at the point at which price equals marginal cost ( ), firms earn zero economic profit when . As seen in the preceding cost-curve graph, this occurs at a price of \$44 per pound. From the previous graph, you can see that the short-run equilibrium price is \$44 per pound if there are 30 firms in the copper industry, indicating that \$44 per pound is the long-run price. Therefore, if there are 30 firms in the industry, firms will have no incentive to enter or exit the market.
7. Short-run and long-run effects of a shift in demand Suppose that the perfectly competitive tuna industry is in long-run equilibrium at a price of \$3 per can of tuna and a quantity of 600 million cans per year. Suppose the Surgeon General issues a report saying that eating tuna is good for your health.
Shift the supply curve, the demand curve, or both on the following diagram to illustrate these short- run effects of the Surgeon General's announcement. Tool tip: Click and drag one or both of the curves. Curves will snap into position, so if you try to move a curve and it snaps back to its original position, just try again and drag it a little farther The Surgeon General's report causes demand for tuna to increase. In the short run, the number of firms in the tuna industry is fixed. Therefore, the shift in demand causes a movement along the short- run supply curve. The price of tuna increases, and each firm produces more tuna than before. Because the tuna industry was originally in long-run equilibrium, firms were earning zero profit before the Surgeon General's announcement. Therefore, an increase in price would cause firms to be earning positive profit. In the long run, some firms will respond by entering the industry until