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Long Run Equilibrium definitions

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  • Long Run Equilibrium
    A market state where price equals minimum average total cost and firms earn zero economic profit, even after demand or supply changes.
  • Perfect Competition
    A market structure with many firms selling identical products, allowing free entry and exit, and no single firm can influence price.
  • Average Total Cost
    A firm's total cost divided by output, showing the per-unit cost of production at various output levels.
  • Marginal Cost
    The additional cost incurred from producing one more unit of output, crucial for determining optimal production.
  • Marginal Revenue
    The extra revenue gained from selling one more unit, equal to price in perfectly competitive markets.
  • Economic Profit
    The difference between total revenue and total costs, including opportunity costs; zero in long-run equilibrium.
  • Demand Curve
    A graphical representation showing the relationship between price and quantity demanded at various prices.
  • Supply Curve
    A graphical representation showing the relationship between price and quantity supplied at various prices.
  • Entry
    The process by which new firms join a market, typically attracted by short-run profits, increasing market supply.
  • Exit
    The process by which firms leave a market, usually due to losses, reducing market supply.
  • Aggregate Demand
    The total demand for a product in the market, influencing price and quantity when it shifts.
  • Market Supply
    The total quantity of a good that all firms in a market are willing to sell at each price.
  • Zero Economic Profit
    A situation where total revenue equals total costs, including opportunity costs, leaving no incentive for entry or exit.
  • Short Run Profit
    A temporary situation where firms earn above-normal returns due to a sudden increase in demand.
  • Minimum ATC
    The lowest point on the average total cost curve, indicating the most efficient scale of production.