Equilibrium in Accordance to Time Period:

It is the term of market in which we divide the production process according to its time.

Time period of the production process under perfect competition is divided into following two types:

  1. Short-run Equilibrium under Perfect Competition
  2. Long-run Equilibrium under Perfect Competition

Short-run Equilibrium under Perfect Competition:

In short term period major changes in the production process of the product and entry of new firms and industries is not possible. Under perfect competition short-run equilibrium will face following four stages:

Abnormal or Supernormal Profit:

In this stage the firm will gainshort-run-equilibrium-abnormal-profit extra profit through its products. If the total revenue is greater than the total cost (TR > TC) of the firm, then firm will face abnormal or supernormal profit.

Normal Profit:

In this stage firm will earn normalshort-run-equilibrium-normal-profit profit which they usually make. In this stage total revenue will be equal to the total cost (TR = TC) of the firm.

Little Loss:

In this stage firm will face a little loss in its business. short-run-equilibrium-little-lossIf the total revenue become less than or equal to the total cost (TR ≤ TC), firm will face little loss.

Shut down Point:

It is the stage in which firm faces big loss and has no option other than to shut down the business. In this stage total revenue becomes very less than the total cost (TR < TC) of the business.short-run-equilibrium-shut-down-point

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