Question

If the market for quilts is perfectly competitive and other quilt producers face the same cost as Alex then what would you expect to happen to both the number of firms making quilts and the equilibrium price of quilts in the long run

Answer 1

Since the firms are currently losing money, some of them will eventually exit the market in the long run. Once the total number of firms decreases, the equilibrium price will shift upwards until it reaches a point where the firms are able to break even. in other words, the firms will make 0 economic profit, but they will not lose money either.