Based on your answer in 1.2.1, identify two key features of long run equilibriumand determine the price associated with this period

Key Features of Long-Run Equilibrium

1. Profit Maximization: In the long run, firms in a competitive market will produce at a level where marginal cost (MC) equals marginal revenue (MR). This ensures that firms are maximizing their profit, and in a long-run equilibrium, firms earn normal profit (zero economic profit) — meaning that the price in the industry equals the average total cost (ATC) of production.

2. Entry and Exit of Firms: In the long run, if firms in a market are making economic profits, new firms will enter the market, leading to increased supply and a reduction in prices until economic profits are eliminated. Conversely, if firms are incurring losses, some firms will exit the market, decreasing supply and allowing prices to rise until the remaining firms reach a point of normal profits.

Price Associated with Long-Run Equilibrium

In long-run equilibrium in a perfect competitive market, the price (P) is associated with the average total cost (ATC) of the firms. Therefore:

$P = ATC$

This indicates that in long-run equilibrium, the price adjusts to the level where the ATC of producing goods equals the market price, resulting in zero economic profit for the firms in the market.