The Effect of an Increase in Demand in the Short Run and the Long Run for a Constant-Cost IndustryPanel (b) shows how an industry adjusts in the short and long run to an increase in demand; panels (a) and (c) show the corresponding adjustments by an existing firm. Initially the market is at point X_MKT in panel (b), a short-run and long-run equilibrium at a price of $14 and industry output of Q_X. An existing firm makes zero economic profit, operating at point X in panel (a) at minimum average total cost. Demand increases as D₁ shifts rightward to D₂, in panel (b), raising the market price to $18. Existing firms increase their output, and industry output moves along the short-run industry supply curve S₁ to a short-run equilibrium at Y_MKT. Correspondingly, the existing firm in panel (a) moves from point X to point Y as its demand rises from D_F1 to D_F2. But at a price of $18 existing firms are profitable. As shown in panel (b), in the long run new entrants arrive and the short-run industry supply curve shifts rightward, from S₁ to S₂. There is a new equilibrium at point Z_MKT, at a lower price of $14 and higher industry output of Q_Z. An existing firm responds to the decrease in its demand to D_F3 by moving from Y to Z in panel (c), returning to its initial output level and zero economic profit. Production by new entrants accounts for the total increase in industry output, Q_Z − Q_X. Like X_MKT, Z_MKT is also a short-run and long-run equilibrium: with existing firms earning zero economic profit, there is no incentive for any firms to enter or exit the industry. The horizontal line passing through X_MKT and Z_MKT, LRS, is the long-run industry supply curve: at the break-even price of $14, producers will produce any amount that consumers demand in the long run.