Perfect Competition – Long-Run Equilibrium
Microeconomics
A diagram illustrating a perfectly competitive firm in long-run equilibrium, where economic profit is zero, and the firm is operating at its most efficient scale.
Curves and Elements
ar mr
AR = MR: The perfectly elastic demand curve faced by a firm in perfect competition.
mc
Marginal Cost (MC): The cost of producing one additional unit — intersects MR at the profit-maximizing output.
atc
Average Total Cost (ATC): The firm's per-unit cost of production — tangent to the demand curve in the long run.
q
Quantity (Q): The long-run equilibrium quantity where the firm is both allocatively and productively efficient.
p
Price (P): Equal to AR, MR, and ATC — no economic profit is earned.
In the long run, firms in perfect competition earn normal profit, meaning total revenue equals total cost — including opportunity costs.
The firm's demand curve (AR = MR) is perfectly elastic because it is a price taker, determined by the industry.
The firm produces at quantity Q where marginal cost (MC) equals marginal revenue (MR), which is also equal to average total cost (ATC).
Since price = ATC, the firm earns zero economic profit, which is the defining feature of long-run equilibrium.
In this state, there is no incentive for firms to enter or exit the market, and resources are allocated efficiently.
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