The market is in long- run equilibrium, where all firms earn zero economic profits producing the output level where P = MR = MC and P = AC. To understand how short-run profits for a perfectly competitive firm will evaporate in the long run, imagine the following situation. Entry and exit to and from the market are the driving forces behind a process that, in the long run, pushes the price down to minimum average total costs so that all firms are earning a zero profit.īack to : ECONOMIC ANALYSIS & MONETARY POLICY In turn, a shift in supply for the market as a whole will affect the market price.
However, the combination of many firms entering or exiting the market will affect overall supply in the market.
No perfectly competitive firm acting alone can affect the market price. What is the Long-Run Equilibrium in a Perfectly Competitive Market?
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