Understanding Long-Run Market Equilibrium and Its Impact on Perfect Competition in Social Science

long run market equilibrium

when the quantity supplied equals the quantity demanded, given that sufficient time has elapsed for entry into and exit from the industry to occur

Long-run market equilibrium refers to a situation where market supply and demand are balanced in the long run. In this situation, firms are able to earn normal economic profits. This is the point where the market price equals the minimum average total cost (ATC) of all the firms in the industry.

In the long run, there are no barriers to entry and exit, and firms can easily enter or exit the market. This means that if firms are earning above-normal profits, new firms will enter the market, increasing the market supply, which decreases the market price and reduces profits until they are back at the normal level. Similarly, if firms are earning below-normal profits, firms will exit the market, reducing the market supply, which increases the market price and increases profits until they are back at the normal level.

In a long-run market equilibrium, the market is in a state of dynamic efficiency since firms are producing goods and services at the minimum cost while consumers are receiving them at a price equal to the cost of production. The market allocates resources efficiently, maximizing the satisfaction of both consumers and producers.

Overall, in a long-run market equilibrium, market forces are fully operational, and the market is in a state of perfect competition. The market price reflects the true value of the goods and services, which is determined by the forces of supply and demand.

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