We know that in long run period we have enough time to make major changes in the production process to overcome the loses and there is plenty of time for new firms to enter the market. Following are the conditions of the long run equilibrium under perfect competition:
- In short run period shut down of the business is possible for the firm but in long run period firm is not willing to face such a great loss because the expansion of the business in long run period are much greater than short run period.
- For firms in little loss, have only two options:
- Either to improve the condition of the business (recommended).
- To leave the industry under adverse circumstances.
- Supernormal profit of the firms is not good for new firms because in these circumstances firm earning super normal profit will increase its size which will not appreciate the entry of new firms in the market.