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Long-Run Equilibrium of a Perfect Competitor

Long-Run Equilibrium

The existence of positive economic profit in the short-run will encourage new firms to join the industry, especially when there are no barriers to entry. This process of new entry will persist until the profit of each firm in the industry drops to zero; as a result of excess supply and continuous downward review of price to the level where price (P) equals Average Total Cost (LAC).

Figure 10.2: The long-run equilibrium position of a perfectly competitive firm

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