Investment reduces both total as well as marginal cost of production. Active firms incur a fixed cost even if no output is produced. Market demand is stationary over time. The industry equilibrium path is socially optimal. Equilibrium prices are decreasing over time.
Firms invest in cost-reduction and earn negative profit when they are young.
Mature firms, on the other hand, face prices above their minimum average cost, produce beyond their minimum efficient scale and earn strictly positive net profit. No firm enters after the initial time period. Heterogeneity in the actions, sizes and profits of firms emerges endogenously through differences in their length of stay in the industry.