Perfect competition is characterized by large numbers of buyers and sellers, homogeneous products, free entry and exit of firms, and firms being price takers with a horizontal demand curve. For profit maximization, firms in perfect competition are in equilibrium when marginal revenue equals marginal cost - if marginal revenue is greater than marginal cost, profits will rise by increasing output, and if marginal revenue is less than marginal cost, profits will fall by expanding output. In the short run, firms may earn abnormal profits by entering the market or incur losses by leaving the industry, but in the long run profits are driven to zero through free entry and exit.