A characteristic of competitive markets (perfect competition), as well as monopolistic competition is the absence of entry and exit barriers. This means that new firms can easily enter the market, and it is also easy to exit the market. Firms would be attracted to enter a market if above-normal rates of return could be earned in the market.
Suppose a lower cost production method is found for a product sold in a perfectly competitive market and that the demand for the product is inelastic.
What happens to industry profits in the short run, when the number of firms is fixed?
What happens to industry profits in the long run?
What happens to total industry revenues in the long run?