In the long run, firms in a competitive market will earn zero economic profit, which may seem counterintuitive. This zero economic profit condition arises because economic profit accounts for non-monetary opportunity costs, such as alternative uses of the owner's time and resources. While firms do not earn economic profit, they can still achieve positive accounting profit, which reflects the actual cash flow of the business. This accounting profit helps cover opportunity costs, allowing the firm to remain operational.

The relationship between price (P), average total cost (ATC), and quantity (Q) is crucial in understanding profit or loss. The profit or loss can be calculated using the formula: \( \text{Profit} = (P - ATC) \times Q \). In the short run, if firms are making profits (when P > ATC), new firms will enter the market, increasing supply and causing the price to fall. This shift in supply can be illustrated with supply curves, where the initial supply curve (S1) shifts to the right to a new supply curve (S2), leading to a lower equilibrium price.

Conversely, if firms are incurring losses (when P < ATC), some firms will exit the market, reducing supply and causing the price to rise. This dynamic continues until the market reaches an equilibrium where price equals average total cost (P = ATC). At this point, firms earn zero economic profit, which occurs at the minimum point of the ATC curve.

In the long run, the market supply curve becomes perfectly elastic, represented as a flat line. This indicates that at any given price, the market can supply the quantity demanded, as firms will adjust their numbers to meet demand. If demand increases, firms will enter the market until the price stabilizes at the minimum ATC, ensuring that the market can always fulfill demand without generating economic profits. This equilibrium reflects a stable market where firms operate efficiently at their minimum average total cost.