Final answer:
Firms in perfectly competitive markets will supply at the point where P = MR = MC. This point ensures profit maximization and occurs regardless of whether marginal cost is rising, falling, or constant. Market adjustments, such as demand changes, may lead to temporary shifts in supply, but long-run equilibrium is where P = MR = MC and P = AC.
Step-by-step explanation:
In the long run, firms in a perfectly competitive market will offer supply at the point where P = MR = MC regardless of whether MC is rising, falling, or constant. This equalization occurs because firms aim to maximize profits, and the condition where price (P) equals marginal revenue (MR) and marginal cost (MC) is where profit maximization is achieved.
Imagining a situation where the market is in long-run equilibrium and all firms are earning zero economic profits at the level where P = MR = MC and P = AC. In this state, no firm has the incentive to enter or leave the market. If demand for the product increases and market price goes up, the firms will respond by increasing production to the new output level where the new higher price equals MR and MC.
However, this dynamic changes if the firm is producing at a quantity where marginal costs exceed marginal revenue, as the firm will decrease production to increase profits until MR = MC once again. As a result, the firm's individual supply curve might temporarily shift until market conditions cause the price to adjust, ultimately resulting in the firm returning to producing at the level where P = MR = MC.