The marginal costs (MC), average variable costs (AVC), and average total costs (ATC) for a firm are shown in the figure below. The market price is $26. If the industry consists of many firms identical to this one, then over time:

1) firms will enter market and the short run market supply curve shifts to the left

2) firms enter the market and short run market supply curves shift to the right

3) firms exit the market and the short run market supply curve shifts to the left

4) firms exit the market and shot run supply curve shifts to the right.

Price/Cost ($) 50 MC 40 ATC 30 AVC 20 10 0 10 20 30 40 50 Quantity