The industry is in long-run equilibrium, when besides the equality of long-run supply and demand for the industry product; all the firms are in (long-run) equilibrium in the sense that there is neither a tendency for the new firms to enter the industry nor for the existing firms to leave it.
The long-run equilibrium of the industry or full equilibrium as it is sometimes called would be attained, when the number of firms in the industry is in equilibrium (i.e., no movement into or out of the industry), each making only normal profits. Thus, the individual firms have no incentive to change their output.
Marshall regarded it as stationary equilibrium. This is illustrated in Fig. 10.10, where long-run supply curve (SS) and demand curve (DD) intersect at (equilibrium) point ‘E’. The equilibrium price OP so determined is unique and all the firms in the industry produce at the same minimum point of the long-run average cost (LAC) curve at OP price.
Though the LAC of the firms may be the same in equilibrium, but, the size and efficiency level of the firms may be different. Thus, the average and marginal costs of the firms excluding normal profits will be different. The more efficient firms employ more productive factors of production and / or more able managers.
They must be paid according to their productivity to avoid their bidding off by the new entrants in the industry. Under such conditions, with the more productive resources properly estimated at their opportunity cost, all the firms have the same unit cost in their long-run equilibrium. The long-run equilibrium of each individual competitive firm will be like the one shown in the right panel of Fig. 10.10.
Fig. 10.10: Long Run Equilibrium of Industry