What is the long-run equilibrium in a perfectly competitive market?

In a perfectly competitive market, the long-run equilibrium refers to a state where all firms in the industry are operating at their optimal level of production and earning normal profits. This equilibrium is characterized by several key features:

1. Price equals marginal cost: In the long run, firms in a perfectly competitive market produce at the point where their marginal cost (MC) equals the market price (P). This condition ensures that resources are allocated efficiently, as firms are producing at the lowest possible cost.

2. Zero economic profits: In the long run, firms in a perfectly competitive market earn only normal profits, which means that their total revenue (TR) equals their total cost (TC). Normal profits are the minimum level of profit necessary to keep firms in the industry, covering all their explicit and implicit costs. If firms were earning economic profits, new firms would enter the market, increasing supply and driving down prices until profits are reduced to zero.

3. Optimal allocation of resources: Perfect competition leads to an optimal allocation of resources in the long run. Since firms are producing at the lowest possible cost, resources are efficiently allocated to their most valued uses. This ensures that consumer demand is met at the lowest possible prices, maximizing social welfare.

4. No barriers to entry or exit: In a perfectly competitive market, there are no barriers to entry or exit for firms. This means that new firms can easily enter the market if they see an opportunity for profit, and existing firms can exit if they are unable to cover their costs. This freedom of entry and exit ensures that the market remains competitive and prevents firms from earning long-term economic profits.

Overall, the long-run equilibrium in a perfectly competitive market is characterized by firms producing at the lowest possible cost, earning normal profits, and resources being allocated efficiently. This equilibrium is achieved through the forces of competition, which drive prices down and ensure that firms operate at their optimal level of production.