In Perfect Competition the profit maximizing firm will always operate where P = MC.
As we show to the right, if the level of output where P = MC is greater than the productively efficient output, QPE, firms will be earning profits. In perfect competition profits lead to entry, falling price and falling output until profits are zero and output is QPE. If output is below the productively efficient level firms are incurring losses leading to exit, rising price and increasing output until zero profit is reached and output is QPE. Thus, market forces guarantee that in long run equilibrium perfectly competitive firms are productively efficient
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