Over the long run firms exit the industry due to the losses being experienced by the firms within the industry. Firms exiting shifts the supply curve back. Since losses are the incentive for exit, firms will continue to leave the industry until profits are zero.

   This means the supply curve will shift back to S₂, causing market price to rise back to P _I. Total industry output will fall even more, to Q₃. However, for the firms that remain in the industry, price and output return to P _I, Q _I where they were before the drop in demand.

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