Long Run Equilibrium of Competitive Firm

In a perfectly competitive market, a firm will reach a long-run equilibrium when it is operating at an optimal level of production and is earning zero economic profits. This equilibrium is achieved through the following conditions:

Lowest Point of the Average Cost Curve

The firm must operate at the lowest point on its average cost curve (LAC) to minimize its costs of production and maximize its profits. At this point, the firm will be able to produce its output at the lowest possible cost.

Marginal Cost Equals Price

In the long run, the firm will produce at a level where its marginal cost (LMC) equals the market price (P). This is because the firm will continue to produce as long as its marginal cost is less than the market price, and will stop producing when its marginal cost exceeds the market price.

Marginal Revenue Equals Price

In a perfectly competitive market, the firm faces a horizontal demand curve, meaning that it can sell any quantity of output at the market price. Therefore, the firm's marginal revenue (MR) will also equal the market price. In the long run equilibrium, the firm will produce where its marginal cost equals its marginal revenue, which is also equal to the market price.

Conclusion

Therefore, the correct answer is option A, where the long-run equilibrium of a competitive firm is achieved when its LMC equals its LAC, and both equal the market price. This condition ensures that the firm is producing at the most efficient level and is earning zero economic profits, which is the hallmark of a perfectly competitive market.