Exit by some firms means demand for the services of remaining firms increases. This exit, shown by the shift to D2 and MR2, will continue until profits are zero. Price and output will both increase for the remaining firms, shown by P2 and Q2.

    The new long run equilibrium differs from the old in that there are fewer repair shops and prices are higher, due to the increase in costs. Overall industry output has fallen (customers demand less frequent service) due to the higher prices.

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