Question

What do economists call a situation where no new firms want to enter a market and existing firms do not want to leave the market?

When perfectly competitive firms are in long run equilibrium, how do we know from looking at the demand curve and the average total cost curve that they are being productively efficient? When perfectly competitive firms are in long run equilibrium, how do we know from looking at price and marginal cost that they are being allocatively efficient?

Answer 1

a) The situation when no firm wants to enter the market and no firm wants to leave the market is called the market being in the long run, If the market is in long run, then the firms in the market are just breaking even and no one wants to leave the market or enter the market.

b) Being productive efficient means producing at the point where the Average total cost is the lowest. that is the most efficient the firm can get in producing goods . If the firm is producing at the lowest cost of the Average total cost then the firm is being productive efficient

c) A firm is allocative efficient when the goods they are producing has the same cost of value what the customer value for the product. i.e. the price and cost of production are both equal. it happens when the MC and price are equal. Which is when the firm is at the long run equilibrium.