Since P2 is well below the ATC curve at output level Q2, firms in this industry are incurring losses. The gray shaded area on the graph illustrates the amount of this loss at current prices.

   Since firms in this industry are suffering losses, this industry has become a worse than typical investment. This means that firms (some firms remember) will exit the industry. It makes no sense that all firms would exit. Otherwise, entire industries would disappear whenever there is a slight recession. Firms with more optimistic owners will remain.

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