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Effect of product price falls

Industry named X is characterized through perfect competition; therefore each firm in the industry is earning zero economic profit. If the product price falls, not any firms can survive.  Do you agree or disagree?  Discuss it.

Disagree.  As the market price decrease, firms cut their production.  If price falls below average net cost, firms continue to generate in the short run & cease production in the long run. If price falls below average variable costs, firms cease production in the short run.  Thus, along with a small decrease in price, that means less than the difference among the price and average variable cost, the firm can survive.  With larger price decrease that means greater than the difference among price and minimum average cost, the firm cannot survive. Generally, we would expect that some of the firms will survive and that just adequate firms will leave to bring profit back up to zero.

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