Foundations of Economics, 8th Edition

15.3 Output, Price, and Profit In The Long Run

MyEconLab Concept Video

Competitive markets are in a constant state of change. Price, quantity, and economic profit fluctuate as demand and supply change. None of the three ­situations that we described on the previous pages—normal times, good times, or bad times—last forever in perfect competition. Market forces operate to compete away economic profits and eliminate economic losses to move the price toward the lowest possible price. That price equals minimum average total cost. In the long run, a firm in perfect competition produces at minimum average total cost and makes zero economic profit. (The firm’s entrepreneur earns normal profit—part of the firm’s total costs.)

Figure 15.10 illustrates ...