Long run equilibrium - perfect competition, Microeconomics

Long run equilibrium - Perfect competition:

In the long-run, on the other hand, the firm in perfect competition is making normal profit or zero economic profit as shown in Figure below (total cost equal total revenue)

2005_Long run equilibrium - Perfect competition.png
Figure: The Long-run Equilibrium Position of the Perfectly Competitive Firm.

The existence of positive economic profit in the short-run serves as an incentive for new firms to join the industry, especially since there are no barriers to entry. The process of new entry will persist until the profit of each firm in the industry is competed out. That is, excess supply and continuous downward review of price to the level where price (P) equals average total cost (LAC) will engender zero economic or normal profit in the long-run.

Posted Date: 1/3/2013 1:22:47 AM | Location : United States

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