Perfect competition is a theoretical market structure in which the following criteria are met: All firms sell an identical product. All firms are price takers. Market share has no influence on prices. Given the characteristics described above i. Describe the factors that drive profits to zero in perfectly competitive markets in the long run. Explain carefully the incentives that drive the market to a long run equilibrium.  ii. Why would a firm choose to operate at a loss in the short run?

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Equilibrium Price and Quantity

Equilibrium refers to a state of balance that comes about because there is equality in all forces.