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8.10 : Long-run Competitive Equilibrium II

A long-run competitive equilibrium in the market is facilitated through the fulfillment of three crucial conditions.

Profit Maximization at Minimum Cost: Firms strive to maximize their profits by producing goods or services at the lowest possible average cost for any level of production. All firms have equal access to the same resources and technology used in production, allowing all firms in the market to operate under the same production cost curves.

No Incentives for Entry or Exit: Since all firms share a common production cost structure, this means no outside firms can expect to make an economic profit by entering the market. Also, this also means no firms in the market are experiencing an economic loss, and have no desire to exit the market.

Price and Demand Equilibrium: The market price is adjusted to a point where the quantity supplied by the market exactly meets the quantity demanded by consumers. Further, all production occurs at the lowest average total cost of production. This combination ensures that resources are allocated efficiently, with no surplus or shortage in the market. As a result, societal welfare is maximized by perfectly aligning seller supply with consumer demand.

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