In the long run, the perfectly competitive firm will maximize profit by adjusting plant size so that the short run average cost is equal to the long run average cost.

Question

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In the long run, a perfectly competitive firm will enter or exit the industry until it reaches a plant size where the short run average cost (SRAC) is equal to the long run average cost (LRAC). This is because firms in a perfectly competitive market have no market power and must produce at the lowest possible cost to remain in the industry. Therefore, they will adjust their plant size to minimize costs and maximize profit.

In the Long Run, the Perfectly Competitive Firm Will Maximize