Question

Make a case of the difference between the long-run equilibrium of a firm and of an industry.

Answer 1

Sr. No.	Basis	Long-run equilibrium of a firm	Long-run equilibrium of an industry
1.	Definition	Occurs when a firm earns only normal profits, covering all its costs, including opportunity costs.	Occurs when the total quantity demanded equals the total quantity supplied, with all firms earning normal profits.
2.	Profit level	Firms earn only normal profits (TR = TC), as supernormal profits attract new entrants, reducing prices.	Industry as a whole earns normal profits, ensuring no incentive for firms to enter or exit.
3.	Entry and exit	No entry or exit as firms earn just enough to cover all costs.	Free entry and exit of firms until all firms earn normal profits.
4.	Output level	The firm produces at the lowest point on its long-run average cost (LRAC) curve, ensuring maximum efficiency.	The industry output is determined by the intersection of long-run industry supply (LRS) and long-run industry demand (LRD).
5.	Price setting	Price is determined by the industry, and the firm is a price taker.	Price is set at the point where LRS = LRD, reflecting the collective actions of all firms.
6.	Efficiency	Firms operate at maximum productive efficiency (minimum LRAC) and allocative efficiency (P = MC).	The industry as a whole achieves both productive and allocative efficiency, leading to optimal resource allocation.
7.	Market power	Individual firms have no control over price in perfect competition.	The industry collectively influences market price based on overall supply and demand.