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Then we can define a long run competitive equilibrium precisely as follows. So the firm earns zero economic profit by producing 500 units of output at a price of 60 in the long run.

Eco 550 Final Exam 5 1 The Degree Of Operating Leverage Is Equal

New firms will enter the market.

Long run competitive equilibrium. A firm s long run equilibrium under perfect competition long term is the period in which the firm can vary all of its inputs. There are no fixed costs and therefore the afc or average fixed cost curve vanishes. If firms in the industry are incurring economic losses.

In the long run a firm just earns normal profits. If economic profits are possible in the industry. The long run adjustment process will affect the demand of inputs and hence their prices.

That is in the long run each firm will produce equilibrium output at the minimum point of its ac curve. The long run competitive equilibrium when every firm s long run average cost curve is the same given by lac y is characterized by a price p an output y for each firm and a number n of firms such that p is the minimum of lac n y y is the minimizer of lac n y q d p n y. When there is no tendency for firms to either enter or leave the market.

In the long run a firm achieves equilibrium when it adjusts its plant s to produce output at the minimum point of their long run average cost ac curve. If economic profit is greater than zero. An industry is in long run competitive equilibrium.

The long run equilibrium price equals 60 00. Each firm will make only normal profit. Firms have no difficulty moving into or out of a perfectly competitive market.

This curve is tangential to the market price defined demand curve. Long run equilibrium of the firm. Once long run equilibrium is reached there will be no incentive for firms to exit or new firms to enter.