Final answer:
In the long run, firms in a perfectly competitive market will make zero economic profit due to the process of entry and exit, which stabilize the market price. The market adjusts to changes in demand, which affects production costs and categorizes industries into constant-cost, increasing-cost, or decreasing-cost types.
Step-by-step explanation:
If firms can easily enter and exit a market, then in the long run, firms will produce at minimum average cost. The process of entry and exit in response to profits and losses ensures that in a perfectly competitive market, the price will move toward the zero-profit point, where firms earn zero economic profit in the long run. This zero-profit point occurs where the marginal cost curve crosses the average cost curve at its minimum. When the market price is equal to the average cost, firms make zero profits, and any potential short-term gains or losses are neutralized by the entry or exit of firms in the market, stabilizing the market price.
In the case of industry adjustments due to changes in demand, the reaction of costs can categorize an industry as a constant-cost, increasing-cost, or decreasing-cost industry. This categorization is based on whether production costs remain stable, increase, or decrease as demand changes.