At the long-run profit maximizing equilibrium of a firm in a perfectly competitive market, marginal cost will equal marginal revenue.
Economic profit is the amount by which total revenue exceeds the total economic costs of the company. Total economic costs include all of the explicit (cash) costs that are paid by the firm as well as the relevant implicit (opportunity) costs. Another way of looking at economic profit is the excess of profit that a company has in its current business over what it could make in its next best alternative business. At the long-run profit maximizing equilibrium of a firm in a perfectly competitive market, in the long run the company will not be able to maintain any economic profit. If there are economic profits to be made in the market, other firms will enter the market. The entry of the new firms will push the market price down until economic profit is zero.
For a firm in a perfectly competitive market, the price does equal the marginal cost. In a perfectly competitive market, each seller can sell as many units as they wish at the market price. In all other types of market structures, in order to sell more units, a seller must decrease the price, so marginal revenue will not be the same as the price. But for a perfectly competitive seller at the long-run profit maximizing equilibrium, marginal revenue is equal to the price, and marginal revenue and price are both equal to marginal cost.
At the long-run profit maximizing equilibrium of a firm in a perfectly competitive market, the price does equal the average total cost. In economics, "total cost" includes a normal profit. Since a normal profit is a part of the total cost, it is thus also a part of the average total cost. In the long run, the most profit a firm in a perfectly competitive market can earn is a normal profit. For a small business that is operated by its owner, normal profit is the value of the entrepreneurial skills of the owner of the business. It is the opportunity cost of the wages that the individual gives up by not working at another job. For a large, publicly held business, a normal profit is an amount of profit that is just enough to keep its investors satisfied that they are earning the return they should be earning on their investment. For a large business, normal profit is a normal return to capital. So when we say that at the long-run profit maximizing equilibrium of a firm in a perfectly competitive market, price equals average total cost, we are saying that in the long run, all firms in a perfectly competitive market will earn a normal profit, but no firms will earn an economic profit.
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