Answer:
The equilibrium price and quantity in the long-run are determined by the forces of supply and demand in a perfectly competitive market. In the long-run, firms can freely enter or exit the market, which means that new firms can enter if there is a profit incentive, and existing firms can leave if they are experiencing losses. This process continues until the market reaches a long-run equilibrium, where there is no incentive for firms to enter or exit the market.
In a perfectly competitive market, the long-run equilibrium price (P*) and quantity (Q*) are determined by the intersection of the market demand curve (D) and the long-run market supply curve (LRMC):
Equilibrium Price (P*): The equilibrium price in the long-run is the price at which the quantity demanded (Qd) equals the quantity supplied (Qs) in the market. At this price, there is no shortage or surplus of goods, and the market is in balance.
Equilibrium Quantity (Q*): The equilibrium quantity in the long-run is the quantity of goods or services that will be produced and consumed in the market when the market is in long-run equilibrium.
The number of firms in the market in the long-run is determined by the condition of zero economic profit. In a perfectly competitive market, firms will enter the market if there is a potential for profit and exit the market if there are losses. In the long-run equilibrium, firms will earn zero economic profit (normal profit), which means that they are covering all their costs but not earning any additional profit.
If there are positive economic profits in the short-run, new firms will enter the market to take advantage of the opportunity. This entry of new firms will increase market supply, which will lead to a decrease in price until economic profits are reduced to zero. Conversely, if there are losses in the short-run, existing firms will exit the market, reducing market supply and increasing price until losses are eliminated.
As a result, in the long-run equilibrium of a perfectly competitive market, there will be enough firms in the market to supply the quantity demanded at the equilibrium price, and each firm will earn zero economic profit. The number of firms in the market will adjust to achieve this long-run equilibrium condition.