The entry of firms however, raises industry supply which forces down the product price and reduces profit for every other firm in the industry. Entry continues until economic profit is driven to zero. The same process occurs in reverse when profit is negative for firms in an industry. In this case firms will close down, one by one, as they seek more profitable opportunities elsewhere. The reduction in the number of firms, reduces industry supply which raises the products market price and raises profit for all remaining firms in the industry.
Exit continues until economic profit is raised to zero.
This implies that if production occurs in an industry, be it in autarky or free trade, then economic profit must be zero. Profit is defined as total revenue minus total cost. Let represent profit in the cheese industry. By rearranging the zero profit condition we can write the wage as a function of everything else to get, Recall that the production function for cheese is . Plugging this in for Q C above yields, or just If production occurs in the wine industry then profit will be zero as well.