ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Long-run equilibrium in perfectly competitive markets meets two important conditions: allocative efficiency and productive efficiency. These two conditions have important implications. First, resources are allocated to their best alternative use. Second, they provide the maximum satisfaction attainable by society.

Detailed explanation-2: -In a perfectly competitive market, every firm is considered to have achieved both allocational and operational efficiency. In the theoretical model of perfect competition, a firm will achieve allocative efficiency in the short run. Every producer faces a market price that is equal to its marginal cost of production.

Detailed explanation-3: -Perfect competition is considered to be “perfect” because both allocative and productive efficiency are met at the same time in a long-run equilibrium.

Detailed explanation-4: -At long-run equilibrium, all firms in the perfect competition market are both allocative and productive efficient. This is because price equals the marginal cost (allocative efficiency) and all customers are charged price equal to their marginal benefit.

Detailed explanation-5: -The existence of economic profits attracts entry, economic losses lead to exit, and in long-run equilibrium, firms in a perfectly competitive industry will earn zero economic profit.