In the long run supply must shift back to S3. At that point market price is P3 and firms are earning zero profits again. Thus, there is no further incentive for exit and a new long run equilibrium is established.
In the long run the equilibrium price is determined by cost. Since cost rose, equilibrium price
rose to P3. Individual firms who remained in the industry are producing
Q3. Total industry output has fallen considerably, however, as firms
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