9.4 Long-Run Decisions LO 5
In the long run, profits or losses will lead to firms’ entry into or exit
out of the industry. This pushes any competitive industry to a long-
run, zero-profit equilibrium and moves production to the level that
minimizes long-run average cost.
The long-run response of an industry to steadily changing technology
is the gradual replacement of less efficient plants by more efficient
ones. Older plants will be discarded and replaced by more modern
ones only when price falls below average variable cost.
The long-run response of a declining industry will be to continue to
satisfy demand by employing its existing plants as long as price
exceeds short-run average variable cost.