T he Ricardian model assumes that the wine and cheese industries are both perfectly competitive. Among the assumptions of perfect competition is free entry and exit of firms in response to economic profit. If positive profits are being made in one industry then, because of perfect information, profit-seeking entrepreneurs will begin to open more firms in that industry. 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.