In the theory of the firm, what condition defines the long-run equilibrium for a competitive firm operating under constant returns to scale?

💡 Solution & Explanation

In long-run competitive equilibrium under constant returns to scale, a firm operates where price equals the minimum point of its average total cost curve, yielding zero economic profit. If the price were higher, new firms would enter the market, whereas a lower price would cause firms to exit due to sustained losses. This optimal pricing condition ensures allocative and productive efficiency in perfectly competitive markets.