In the long run the perfect competitor will (LO5) a) make a profit b) break even c) take a loss

In a perfect competition market, there are a large number of small firms that sell identical products or services. The consumers have complete information about the products and there is free entry and exit of firms in the market. In such a market, each firm is a price taker and cannot set the price of its product; it has to accept the market price determined by the forces of supply and demand.

In the short run, a perfect competitor may make a profit, break even, or take a loss depending on the relationship between the market price, average total cost (ATC), and marginal cost (MC). If the market price is above the ATC, the firm will make a profit, as the price covers all the variable and fixed costs and provides some surplus for the owners. If the market price equals the ATC, the firm will break even, as the price just covers the total costs (variable and fixed). If the market price is below the ATC, the firm will take a loss, as the price is insufficient to cover the total costs.

In the long run, firms have enough time to adjust their production levels and enter or exit the market. So, if there are profits in the short run in a perfectly competitive market, more firms will enter the market to take advantage of those profits, which increases the supply and reduces the market price. This process continues until the market price drops to a level where firms just break even, and no new firms have any incentive to enter the market. If firms are taking a loss in the short run, some will exit the market to minimize their losses. This decreases the supply and leads to an increase in the market price. This process will continue until the market price reaches a level where the remaining firms just break even, and no existing firms have any incentive to exit the market. In the long run equilibrium, firms in perfect competition always end up breaking even.

Based on the understanding of perfect competition markets and analyzing short run and long run profit possibilities, we can conclude that in the long run, the perfect competitor will: b) break even