In a perfectly competitive market with identical firms, all surplus will be consumer surplus in long run equilibrium.

Question

Quizplus · Accepted Answer

In perfect competition, firms sell their goods at a price equal to the marginal cost of production. This results in the maximum possible consumer surplus in the market, as consumers are able to purchase goods at a price lower than what they are willing to pay. In the long run equilibrium, all firms earn zero economic profits, and any surplus beyond the costs of production is captured by consumers as additional surplus. Therefore, all surplus is consumer surplus in the long run equilibrium in a perfectly competitive market with identical firms.

In a Perfectly Competitive Market with Identical Firms, All Surplus