Wednesday, November 2, 2011

How can I explain Long Run Equilibrium of firm under perfect competition?

In perfect competition, a firm will, in the long term, produce a guantity of goods where MR = MC.  The price at this point will be dictated by the market because the firm is a price taker.


The firm in long run equilibrium will be making zero economic profit because no economic profit is possible, long term, in perfect competition.


At this output level, the MR will be equal to the minimum point on the long run average cost curve.


At this point, there will be no reason for the firm to change its output level, the size of its factories, or anything else.  Until something changes in the market, it will remain as it is.

No comments:

Post a Comment