Final answer:
In perfect competition, breaking even occurs in the long run when firms earn zero economic profits, operating where price equals both marginal and average costs (P = MR = MC and P = AC). Due to the free entry and exit of firms, the market self-regulates to ensure all remaining firms break even with no economic profits over time.
Step-by-step explanation:
In the context of perfect competition, breaking even occurs in the long run (LR) when all firms in the market earn zero economic profits. This scenario happens because firms produce at the output level where price (P) equals marginal cost (MC) and average cost (AC), meaning P = MR = MC and P = AC. In a perfect competition market structure, there is free entry and exit of firms, so when economic profits are present, new firms enter, increasing supply until the profits are eroded away to zero. Conversely, if firms are experiencing losses, some will exit the market, reducing supply and alleviating the pressure of the losses until firms are just breaking even again.
The process ends with a contraction or expansion in the market's output based on the demand. But importantly, the breaking even is sustained because the market structure ensures that in the long run, firms operate at a level which meets both allocative and productive efficiency. If a market did not achieve this efficiency, it could not be considered a perfect competition market, as it would be failing to either minimize average total costs or pricing at a level equal to marginal cost.