Final answer:
In short-run equilibrium under MC, firms in perfectly competitive markets produce at a profit-maximizing output where MR equals MC. In the long-run, firms earn zero economic profits, and the shape of the LRS curve varies by industry type: flat for constant-cost industries, upward sloping for increasing-cost, and downward sloping for decreasing-cost industries.
Step-by-step explanation:
Equilibrium in the context of economics refers to a situation where market supply and demand balance each other, resulting in stable prices and quantities. When discussing the equilibrium under Marginal Cost (MC) in the short run (SR) and long run (LR), we refer to a firm's profit-maximizing output levels in different time frames within a perfectly competitive market.
In the short run, a firm determines its profit-maximizing level of output by producing until Marginal Revenue (MR) equals Marginal Cost. The given example indicates that MR and MC intersect at a quantity of 40, the profit-maximizing output for the firm. In the long run, however, the dynamics change. With free entry and exit, firms can come into the market if there are profits or leave if there are losses. This process continues until firms earn zero economic profits—when the price (P) equals average cost (AC) and Marginal Cost.
The long run supply (LRS) curve in perfectly competitive markets differs depending on the cost industry type. In a constant-cost industry, the LRS is flat, indicating that as demand increases, more output is produced at the same price. Conversely, for an increasing cost industry, the LRS slopes upward, signaling that output expansions result in higher prices. In a decreasing cost industry, the LRS slopes downward, reflecting the capability to produce more at lower prices.