Final answer:
In a purely competitive market, entry of firms increases supply, lowers prices, and drives profits down to zero in the long run, leading to a long-run equilibrium where no firm earns economic profits or losses.
Step-by-step explanation:
If firms enter a purely competitive industry, then in the long run, this change will shift the industry supply curve and affect the market equilibrium. In a perfectly competitive market, firms entering the industry in response to economic profits will increase the market supply. This leads to a reduction in prices until firms earn zero economic profit, which is a normal profit point at the bottom of the Average Cost (AC) curve where Marginal Cost (MC) crosses AC. Conversely, if firms are making losses, there will be an exit from the market, which will decrease supply and push up prices to eliminate losses. In the long run, entry and exit of firms ensure that prices in a perfectly competitive market reflect the zero-profit point, aligning with the long-run equilibrium.