was previously available, which would reduce the costs of hiring new workers. The entry of new firms may also provide a “critical mass” of industrialization that permits the development of more efficient transportation, communications, and financial networks. Whatever the exact nature of the cost reductions, The final result is illustrated in Figure 10-9. The initial market equilibrium is shown by the price quantity combination P1, Q1 in Figure 10-9(c). At this price, the typical firm in Figure 10-9(a) produces q1 and earns exactly zero in economic profits. Now suppose market demand shift outward to D’. In the short run, price increase to P2 and the typical firm produces q2. At this price level, positive profits are earned. These profits cause new firms to enter market. If these entries cause costs to decline, a new set of cost curves for the typical firm might resemble those in Figure 10-9(b). Not the new equilibrium price is P3. At this price, Q3 is demanded. By considering all possible shifts in demand, the long-run supply curve LS can be traced out. For this decreasing cost case, the long-run supply curve has a negative slope. In this case,increases in demand cause the market price of a product eventually to fall. Whether this explains recent large declines in the prices of telecommunications services is examined in Application 10.4: How Do Network Externalities Affect Supply Curves?