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Illustrate the model of a perfectly competitive firm that is in long-run equilibrium. Your graph should...

Illustrate the model of a perfectly competitive firm that is in long-run equilibrium. Your graph should have the demand curve facing the firm, price, MR, MC, and ATC. Identify the optimal level of output. What is the firm’s profit in the long-run?

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Answer #1

Perfectly competitive firm what happens in the long run is that there are optimal number of entry and exit of firms based on the profit levels and ultimately the number of firms will be in such a way that there will be nothing to grab but nothing to lose or other words you have to understand that in the optimal level the average cost is equal to marginal cost is equal to the price so that firms on 0 profit as shown in the figure. Therefore the optimal profit in the long run is zero and this is also called normal profit.

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