Firms in a perfectly competitive market will make zero economic profits in the long run. If demand shifts initially, causing price and quantity to rise, firms will earn positive profits. This will encourage other firms to enter the industry. The supply curve will shift right, driving the price back down until it returns to the initial equilibrium with zero profits. A similar process will occur if a demand decrease causes losses - firms will exit, shifting supply left and raising price back to the equilibrium level. In the long run, all firms will produce where average cost is minimized, demonstrating productive efficiency.

1. EQUILLIBRIUM DYNAMICS AND THE MARKET IN LONG RUN
One of the most important charactertics of orefect competition is that firms make zero economics
profit zero economics profit in the long run.This is result of the points discussed above and can be
demonstrated using series of diagram.
Suppose demand shifts for some reasons.This will increase equilibrium price and quantity
At the price P2,the representative firm will make positive profit,shown by the shaded area.
When other entrepreneur obsereve that the firms in this industry are making positive profits,they
will decide to enter the industry to make use of this
As a result,supply shifts right and equilibrium price decrease and quanity increase.
Eventually,price will be driven down to the intial price at which every firm will make zero profits.
Note that a similar sequence of events will force price to its equilibrium level regadless at the
starting point.A decrease(rather than the increase depictedabove) in demand will result in looses for
the firm in the industry and firms will exit.This will shif supply to the lrft and increase price until it
returs to its equilibrium level.
When thinking abiut profits,you should remember that we talking abiut economic profits and hrnce
zero profits means that the firms is making positive accounting profits
A final notable point is that the long run equilibrium has every firm in the industry producing at the
point where average cost is minimized.This implies that the output is produced using the minimum
amount possible,thus demonstrating the productive efficiency of prefect competition.