Final answer:
In long-run, perfectly competitive equilibrium, new firms enter the market when economic profits are positive and exit when there are losses, leading to an equilibrium where all firms earn zero economic profits, as price equals average cost.
Step-by-step explanation:
In long-run, perfectly competitive equilibrium, it is observed that new firms enter the market when there are positive economic profits, which increases competition and leads to a decrease in profits. Contrarily, when firms suffer economic losses, they tend to exit the market. This dynamic continues until a state of equilibrium is reached where all firms earn zero economic profits. This outcome results because the entry of new firms and exit of existing ones drive the market to a point where price is equal to average cost, and firms earn just enough to cover their opportunity costs. It's important to note that zero economic profit in this context does not mean the firms are not making any money; it simply means that their accounting profit equals their resources' earnings in the next best alternative use.