A perfectly competitive firm which is not technically efficient would have to sell at price P*, the same price as other firms, even though it would produce less output (where P = MC_TI). Due to technical inefficiency, it is operating on higher cost curves. Its average cost for producing Q*_TI is ATC*_TI, well above the cost of the other firms.

    The technically efficient firm is incurring losses equal to the area labeled LOSS to the right. Since it can't compete with the other firms, in the long run it would have to go out of business. Thus, market forces in perfect competition guarantee that in long run equilibrium firms are technically efficient.

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