q
*
LRMC
SRAC
SRMC
P = MR = Demand
LRAC
Q
$
Long Run Equilibrium
Perfect Competition in the Long Run
Handout
Summary of the firm in long run equilibrium
1.
In the long run, every competitive firm will earn
normal profit, that is, zero
profit.
2.
In the long run, every competitive firm will produce where price (P) is equal to marginal cost
(MC), that is where P = MC.
3.
In the long run, every competitive firm will produce where price (P) is equal to
the minimum
of short run average cost (SRAC), P = SRAC.
This implies zero economic profit.
4.
In the long run, every competitive firm will produce where price (P) is equal to
the minimum
of long run average cost (LRAC = ATC), P = minimum LRAC.
This implies that no
identical firms will want to enter or exit.
5.
Putting it all together:
P = MC = min SRAC = min LRAC
6.
Graphically this gives

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