Economist claim that the equilibrium position of each firm in a perfectly competitive industry the equilibrium can be at the point where D=P=MR=AR. At that point, you can notice that the equilibrium market price, Average revenue per unit is exactly equal to the average cost per unit. This means that AR*Q is exactly to AC*Q which means that TR is the same as TC. Since cost and revenue are the same, this means that there is no profit to be gained from doing so?
NB: your explanation should be supposed with a graph for the more details.
Sure! I'll be happy to explain the concept with the help of a graph.
In a perfectly competitive market, each firm's equilibrium position occurs where the demand (D) curve intersects with the marginal revenue (MR) curve, and both coincide with the price (P). The average revenue (AR) curve is the same as the demand curve in this case.
The graph will have quantity (Q) on the x-axis and price (P) on the y-axis. The marginal revenue (MR) and average revenue (AR) curves will coincide with the demand (D) curve, and all three will be horizontal straight lines. The average cost (AC) curve will be U-shaped, and the equilibrium market price will be where the supply (MC) curve intersects with it.
When D=P=MR=AR, it means that the market price is equal to the marginal revenue and the average revenue per unit. This point represents the quantity (Q) at which the market is in equilibrium.
At the equilibrium point, the total revenue (TR) is equal to the price (P) multiplied by the quantity (Q), which is AR*Q. Similarly, the total cost (TC) is the average cost (AC) multiplied by the quantity (Q), which is AC*Q.
If AR*Q equals AC*Q, it means that TR is the same as TC. In other words, the total revenue earned by the firm is equal to the total cost incurred. At this point, there is no profit or loss because the revenue exactly covers the costs.
To better visualize this, assume that the AC and AR curves intersect at the equilibrium quantity. The surplus between AC and AR represents profit, the gap below AC represents loss, and the point where they intersect represents zero profit (break-even point). In a perfectly competitive market, the equilibrium point is where firms tend to operate.
So, in summary, when D=P=MR=AR and AR*Q is equal to AC*Q, it means that the total revenue is equal to the total cost, resulting in zero profit. This suggests that there is no additional profit to be gained from production at this equilibrium point.