Topic-3-Price Determination Under Perfect Competition

Segment: Pricing in Mass Markets
Topic: Price Determination under Perfect Competition

MBO103 – Managerial Economics
Table of Contents
1. Market and Market Structure ................................................................................................. 4

2. Perfect Competition ................................................................................................................ 6
3. Summary Price – Output Determination under Perfect Competition (General Model) ..... 9
4. Equilibrium of the industry and the firm under perfect competition ................................ 12
5. Short-run Firm Equilibrium under Perfect Competition...................................................... 13
6. Long-run Industry Equilibrium under Perfect Competition ................................................ 16
7. Long-run Firm Equilibrium under Perfect Competition....................................................... 16
8. Summary ................................................................................................................................ 18
9. Glossary .................................................................................................................................. 19
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Introduction
In the previous topic, we studied revenue analysis and pricing policies. We saw how costs can
influence the pricing behaviour of a firm. In recent years, where firms are finding it difficult to
differentiate themselves from their competitors, the price fixed by a firm is highly influenced
by the pricing behaviour of its competitors. Effectiveness of a firm’s management lies in its
capacity to analyse the market. Knowledge of market structure and different kinds of markets
is of utmost importance to a business manager in taking right pricing decisions and planning
business activities efficiently. In this topic, we will be studying price determination under
perfect competition.
Case Let (Continued from previous topic)

Ramesh presented the revenue analysis of his firm; which showed that to meet its expansion plans, the
firm’s profits would be affected by the interest costs arising from borrowings. However, Ramesh was
unable to explain convincingly the impact of competitors’ pricing strategies on the prices charged by his
firm and consequent revenues. He doubted the feasibility of forecasting revenues when competitors’
pricing decisions could not be predicted with adequate levels of confidence. He met his superior about
this issue. Discussions indicated that, in the past few years, Ramesh’s firm was able to sell higher
quantities of its outputs by responding suitably to competitors’ pricing moves. Ramesh’s superior stated
that this was possible as some of the products sold by his firm were different from the products sold by
other firms in the market. This set Ramesh thinking about how product differentiation influenced
product pricing in different markets.
Learning Objectives
At the end of this topic, you will be able to:

• analyse the market with respect to its structure of competition
• differentiate between different types of market structures
• explain how firms under perfectly competitive markets maximise their output
• describe short-run and long-run concepts to price determination in perfectly

competitive markets.
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1. Market and Market Structure

Market, in economics, does not refer to a place or places but to a commodity and also to
buyers and sellers of that commodity who are in competition with one another, for example,
the cotton market may not be confined to a particular place, but may cover the entire country
and, in fact, even the entire world. Buyers and sellers of cotton may be spread all over the
world.
Thus, in common parlance, market refers to a place where sellers and buyers meet for
exchanging goods, but in the language of economics it has a wider meaning. It refers to a
context where buyers and sellers come into close contact with one another for the settlement
of their transactions.
According to Prof. Cournot, the term market is, “not any particular market place in which
things are bought or sold, but the whole of any region in which buyers and sellers are in such
free interaction with one another that the price of the same goods tend to equalise easily and
quickly”. In the words of Prof. Benham, Market is, “any area over which buyers and sellers are
in such close touch with one another, either directly or through dealers that the prices
obtainable in one part of the market affects the prices paid in other parts of the market”. For
the existence of a market, there is no need for face-to-face contact between the buyers and
sellers to conclude their transactions. In recent years, means of transport and communication
have developed so fast that buyers and sellers can easily come into close contact with each
other for the settlement of their transactions without establishing a face-to-face relationship.
The term market hence implies to:
i) Existence of a commodity to be traded.
ii) Existence of sellers and buyers.
iii) Establishment of contact between the sellers and buyers.
iv) Willingness and ability to buy and sell a commodity and
v) Existence of a price at which the given commodity is to be bought and sold.
Market situation varies in its structure. Market structure refers to economically significant
features of a market, which affect the behaviour, and working of firms in the industry. It tells us
how a market is built up and what its basic features are. According to Pappas and Hirschey,
“Market structure refers to the number and size distribution of buyers and sellers in the
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market for a good or service”. It indicates a set of market characteristics that determine the
nature of market in which a firm operates. Different market structures affect the behaviour of
sellers and buyers in different ways.
The primary characteristics of markets are as follows:
• The number and size distribution of sellers
• The number and size distribution of buyers
• Product differentiation
• Conditions of entry and exit
The number and size distribution of sellers
A market may consist of many, few or very few sellers. There may be a few big firms with huge
investments or a large number of small firms with limited investments. Thus, the operating size
of the firm may be large or small in a market. The number and size of sellers influence the
working of a market.
The number and size distribution of buyers
In a market, there may be large number of buyers. Similarly, a market may consist of many
small buyers or only a few buyers. The total number of buyers influences the nature of
transactions in the market.
Product differentiation
Products sold in the market may be homogeneous, or have substitutes, close substitutes or
remote substitutes. A firm may deliberately differentiate its product with that of the products
of other firms by adopting several techniques.
Conditions of entry and exit
In a few market situations, new firms may enter the industry or, old firms may leave the
industry at their own free will. In case of other market situations, there will be deliberate entry
barriers.
Thus, the characteristics of market structure give us information about the nature of working
of different markets.
Among the different market situations, perfect competition and monopoly form the two
extremes. In between these two market situations, we come across a number of market
situations which may be collectively termed as imperfect markets. In these imperfect markets,
we notice the elements of competition as well as monopoly. They are bi-lateral monopoly,
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monopsony (one buyer), duopoly (two sellers) duopsony (two buyers), oligopoly (few
sellers), oligopsony (few buyers) and monopolistic competition (many sellers). Figure 1
shows the types of competition.
Fig. 1: Types of Competition

The market situations vary in their structure. Different market structures affect the behaviour
of buyers and sellers and firms. Further, prices and trade volumes are influenced by different
types of markets and price - output determination under different market conditions.
2. Perfect Competition
Perfect competition is a comprehensive term which includes pure competition too. Before we
discuss the details of perfect competition, it is necessary to have a clear idea regarding the
nature and characteristics of pure competition.
Pure Competition is a part of perfect competition. Competition in the market is said to be pure
when the following conditions are satisfied:
• Prevalence of a large number of buyers and sellers.
• The commodity supplied by each firm is homogeneous.
• Free entry and exit of firms.
• Absence of any kind of monopoly element.
Under these conditions, no individual producer is in a position to influence the market price of
the product. According to Prof. E.H. Chamberlin – “Under Pure Competition, as the individual
seller’s market is completely merged with the general one, he can sell as much as he pleases at
the going price”. Further, he remarks, “Pure competition means unalloyed by monopoly
elements. It is a much simpler and less exclusive concept than perfect competition”.
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Prof. Joel Dean, after going through the features of pure competition, observes that, “Pure
competition does exist in reality, but it is a rare phenomenon”. Hence, it is stated that it is
possible to come across pure competition in our life, for example, in the markets for rice,
wheat, cotton, jowar, fruits, vegetables, eggs, etc., where there are a large number of sellers
and buyers and practically all goods are identical. If we look at the present market, we notice
that even in these cases, there is a possibility of forming cartels by sellers to influence the
market price. Now, we shall turn our attention to perfect competition.
Meaning and definition of perfect competition
A perfectly competitive market is one in which the number of buyers and sellers are large, all
engaged in buying and selling a homogeneous product without any artificial restriction and,
possessing perfect knowledge of the market at a time. According to Bilas, “the perfect
competition is characterised by the presence of many firms; they all sell the same product
which is identical. The seller is the price-taker”. According to Prof. F. Knight, perfect
competition entails “Rational conduct on the part of buyers and sellers, full knowledge,
absence of friction, perfect mobility and perfect divisibility of factors of production and
completely static conditions”.
Features of perfect competition
1. Existence of a large number of buyers and sellers
A perfectly competitive market will have large number of sellers and buyers. Output of a seller
(firm) will be so small that it is a negligible fraction of the output of the industry. Hence,
changes in supply made by a particular firm will not affect the total output and price. Similarly,
no single buyer can influence the price of the commodity because the quantity purchased by
him is a small fraction of the total quantity.
2. Homogenous products
Different firms constituting the industry produce homogenous goods. They are identical in
character. Hence, no firm can raise its price above the general level.
3. Free entry and exit of firms
There is absolute freedom for firms to get in or get out of the industry. If the industry is making
profits, new firms are attracted into the industry. Conversely, firms will quit the industry if
there are losses. This results in the realisation of normal profits by all the firms in the long run.
4. Existence of single price
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Each unit bought and sold in the market commands the same price since products are
homogeneous.
5. Perfect knowledge of the market
All sellers and buyers will have perfect knowledge of the market. Sellers cannot influence
buyers and, vice versa.
6. Perfect mobility of factors of production
Factors of production are free to move into any industry or occupation in order to earn higher
rewards. Similarly, they are also free to come out of the occupation or industry if they feel that
they are under remunerated.
7. Full and unrestricted competition
Perfectly competitive market is free from all sorts of monopoly and oligopoly conditions. Since
there are a large number of buyers and sellers, it is difficult for them to join together and form
cartels or form organisations. Hence, each firm acts independently.
8. Absence of transport cost
All firms will have equal access to the market. Market price charged by the sellers should not
vary because of the difference in the cost of transportation.
9. Absence of artificial government controls
The government should not interfere in matters pertaining to supply and price. It should not
place any barriers in the way of smooth exchange. Price of a commodity must be determined
only by the interaction of supply and demand forces.
10. The market price is flexible over a period of time
Market price changes only because of changes in either demand or supply force or both. Thus,
price is not affected by the sellers, buyers, firm, industry or the government.
11. Normal profit
As the market price is equal to the cost of production, firms in perfectly competitive markets
can earn only normal profits. Normal profits are those which are just sufficient to ensure the
firms stay in business. It is the minimum reasonable level of profit which the entrepreneur
must get in the long run. It is a part of the total cost of production because it is the price paid
for the services of the entrepreneur, i.e., profit is an item of expenditure for a firm.
Special features of perfect competition
i) It is an extreme form of market situation rarely found in the real world.
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ii) It is a mere concept, a myth, an illusion and purely theoretical in nature.

iii) It is a hypothetical model.
iv) It is an ideal market situation.
Reasons for the study of perfect competition
1. It is used as a yardstick against which all other models can be compared and evaluated.
2. It is quite accurate and useful in explaining and predicting the behaviour of a market and a
firm under certain circumstances.
3. It is a good simplified model for beginners to start with. Its study is useful to prepare a
ground for future study of imperfect markets.
4. It is a useful model to compare the actual with the ideal; what is and what ought to be.
5. It helps us to understand optimum allocation of resources in an ideal market.
3. Summary Price – Output Determination under Perfect Competition

(General Model)
Studying the price - output model under perfect competition is quite interesting. In case of the
industry, under a perfectly competitive market, market price of the product is determined by
the interaction of supply and demand. The market price is not fixed by the buyer or the seller,
firm, industry or by the government. It is only the market forces, i.e., demand and supply
determine the equilibrium price of the product. This peculiar feature is seen only under perfect
competition.
Alfred Marshall compared supply and demand to the blades of a scissor. Just as both the
blades work together to cut a piece of cloth, both supply and demand interact with each other
to determine the market price at which exchange takes place. In the process of price
determination, supply is not more important than demand or, demand is not more important
than supply. Both forces play an equally important role.
Table 1 depicts how the price is determined in the market by the interaction of demand and
supply.
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Table 1: Price Determination Based on Demand and Supply

Price in Demand Supply in Pressure on
State of Market
Rs. in Units Units Price
10 1000 9000 Surplus S > D Downward
8 3000 7000 Surplus S > D Downward
6 5000 5000 Equilibrium S =D Neutral
4 7000 3000 Shortage D > S Upward
2 9000 1000 Shortage D > S Upward
From the table, it is clear that equilibrium price is determined at Rs. 6.00 where demanded
quantity is exactly equal to quantity supplied i.e., 5000 units. Figure 2 shows the equilibrium
output.
Fig. 2: Equilibrium Output

In the case of any industry, interaction of supply and demand will determine the equilibrium
market price. In Figure 2, P indicates OR as equilibrium price and OQ as equilibrium output. The
price at which demand, and supply are equal is known as equilibrium price. The quantity
bought and sold at the equilibrium price is known as equilibrium output.
In the figure, equilibrium price is determined at the point P where both demand and supply are
equal. The upper limit of the price of a product/service is determined by the demand. This
price should not exceed ‘what the market can bear’. In short, the price of the product / service
should not exceed the value of its benefit to the buyers (price should not be more than the
utility of product / service).
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The lower limit of the price is determined by the production cost. In the long run, the price
should not fall below production costs of making and distributing the product / service. With
reference to the industry, the point P can be regarded as the position of stable equilibrium.
Even if there are changes in the price, there will be automatic adjustments in supply and
demand, restoring the original equilibrium position. When the price rises from OR to OR1
supply exceeds demand, there will be excess supply over demand. The excess supply of goods
pushes down the price from OR1 to OR, the original price.
Similarly, when price falls from OR to OR2, demand exceeds supply, excess demand over
supply in its turn pushes up the prices from OR2 to OR - the original price. Thus, interaction
between demand and supply determines the market price.
Under perfect competition, a firm will not have any independence to fix the price of its own
product. The industry is the price - maker or giver and a firm is a price - taker or price acceptor
and quantity adjuster. As a part of the industry, it has to simply charge the price which is
determined by the industry. If it charges a higher price it will lose its sales and, if it charges a
lesser price, it will incur losses.
In case of a firm, the price line which is equal to AR and MR, will be horizontal and parallel to
OX - axis. This is because; the same price has to be charged by the firm for all the units
supplied, irrespective of changes in the demand. Hence,
Equilibrium or Market Price = AR = MR
Difference between a firm and an industry

Basically, there is a difference between a firm and an industry. A firm is a single manufacturing
unit producing and selling either a commodity or a service. It is a part of the industry and is
called as a business enterprise. Business is an economic activity and a business unit is an
economic unit and an individual producing unit. It converts inputs into outputs. These
production units are organised and run by people either as individuals or as members of
households or, as a group of people. It is basically an income-generating unit. It buys inputs like
raw materials, labour, capital, power, fuel, etc and produces goods and services for the
consumers. It organises and combines all kinds of resources and plans for the use of these
resources in the best possible manner.
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Profit making is the basic objective of a firm. The traditional and conventional objective of a
firm was profit maximisation and now, the main objective is profit optimisation.
A business firm is a legal entity on the basis of ownership and contractual relationship
organised for the production and for the sale of goods and services.
Many firms producing similar or homogeneous goods or services collectively make an industry.
The term industry refers to a set or group of firms engaged in the production of a particular
product or a service. For example, Reid and Taylor, Digjam, Reliance Industries, Raymond Ltd.,
etc are all firms producing textiles. Such firms put together constitute the textile industry in
India. Thus, an industry is engaged in the production of homogeneous goods that are
substitutes for each other, use common raw materials, have similar processes, etc. All firms
engaged in providing the same kind of services or doing a common trade or business constitute
an industry, for example, banks, hotels, etc. An industry is a particular line of productive activity
in which many firms are engaged, each adopting its own production and pricing policies to its
best advantage.
4. Equilibrium of the industry and the firm under perfect competition

Short-run Industry Equilibrium under Perfect Competition
The term ‘Equilibrium’ in physical science implies a state of balance or rest. In economics, it
refers to a position or situation from which there is no incentive to change. At the equilibrium
point, an economic unit is maximising its benefits or advantages. Hence, there will always be a
tendency on the part of each economic unit to move towards the equilibrium condition.
Reaching the position of equilibrium is a basic objective of all firms.
In the short period, time available is too short and hence all types of adjustments in the
production process are impossible. As a plant capacity is fixed, output can be increased only by
intensive utilisation of existing plants and machineries or by having more shifts. Fixed factors
remain the same and only variable factors can be changed to expand output. Total number of
firms remains the same in the short period. Hence, total supply of the product can be adjusted
to demand only to a limited extent.
In the short run, price is determined in the industry through the interaction of the forces of
demand and supply. This price is given to the firm. Hence, the firm is a price taker and not a
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price maker. On the basis of this price, a firm adjusts its output depending on the cost
conditions.
An industry under perfect competition in the short run, reaches the position of equilibrium
when the following conditions are fulfilled:
1. There is no scope for either expansion or contraction of the output in the entire industry.
This is possible when all firms in the industry are producing an equilibrium level of output
at which MR = MC. In brief, the total output remains constant in the short run at the
equilibrium point. Thus, a firm in the short run has only temporary equilibrium.
2. There is no scope for the new firms to enter the industry or existing firms to leave the
industry.
3. Short run demand should be equal to short run supply. The price so determined is called as
‘subnormal price’. Normal price is determined only in the long run. Hence, short run price
is not a stable price.
5. Short-run Firm Equilibrium under Perfect Competition

A competitive firm will reach equilibrium position at a point where short run MR equals MC. At
this point, equilibrium output and price is determined.
The firm in the short run will have only temporary equilibrium. The short run equilibrium price
is not a stable price. It is also called as a sub - normal price.
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Fig. 3: Short term equilibrium

The competitive firm, in the short run, will not be in a position to cover its fixed costs. But it
must recover short run variable costs for its survival and continuance in the industry. A firm will
not produce any output unless the price is at least equal to the minimum AVC. If short run
price is just equal to AVC, it will not cover fixed costs and hence, there will be losses. However,
it will continue in the industry with the hope that it will recover the fixed costs in the future.
Fig.4: Short term equilibrium
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If price is above the AVC and below the AC, it is called as “Loss minimisation” zone. If the price
is lower than AVC, the firm is compelled to stop production altogether.
While analysing short term equilibrium output and price, apart from making reference to SMC
and AVC, we have to consider AC also. If AC = price, there will be normal profits. If AC is greater
than price, there will be losses and, if AC is lower than price, then there will be supernormal
profits.
In the short run, a competitive firm can be in equilibrium at various points E1, E2 and E3
depending upon cost conditions and market price. At these various unstable equilibrium
points, though MR = MC, the firm will be earning either supernormal profits or incurring losses
or earning normal profits.
In the case of the firm:
1. At OP4 price, the firm will neither cover AFC nor AVC and hence it has to wind up its
operations. It is regarded as shut-down point.
2. At OP1 price, OQ1 is the equilibrium output. E1 indicates the price or AR = AVC only. It
does not cover fixed costs. The firm is ready to suffer this loss and continue in business with
the hope that the price may go up in the future.
3. At OP2 price, OQ2 is the equilibrium output. E2 indicates the price = AR = AC. At
this point MR is also equal to MC. At this level of output, total average revenue = total average
cost. Hence, the firm is earning only normal profits. It is also known as Break - even point of the
firm, a zone of no loss or no profit. The distance between two equilibrium points E2 and E1
indicates loss-minimisation zone.
4. At OP3 price, OQ3 is the output produced by the firm. At E3, MR = MC. But AR is
greater than AC. For OQ3 output, the total cost is OQ3AB. The total revenue is OQ3E3P3.
Hence, P3E3AB is the total supernormal profits.
Thus, in the short run, a firm can either incur losses or earn supernormal profits. The main
reason for this is that the producer does not have adequate time to make all kinds of
adjustments to avoid losses in the short run.
In case of the industry, E indicates the position of equilibrium where short run demand is equal
to short run supply. OR indicates short run price and OQ indicates short run demand and
supply.
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6. Long-run Industry Equilibrium under Perfect Competition

In the long run, there is adequate time to make all kinds of changes, adjustments and
readjustments in the production process. All factor inputs become variable in the long run.
Total number of firms can be varied, and plant capacity also can be changed depending upon
the nature of requirements. Economies of scale, technological improvements, better
management and organisation may reduce production costs substantially in the long run.
Hence, production can be either increased or decreased according to the needs of the
individual firms and the industry as a whole. In short, supply of the product can be fully
adjusted to meet its demand in the long period.
In the long run, an industry, will be reaching the position of equilibrium under the following
conditions:
1. At the point of equilibrium, the long run demand and supply of the products of the
industry must be equal to each other. This will determine the long run normal price.
2. There will be no scope for the industry to either expand or contract output. Hence, the
total production remains stable in the long run.
3. All the firms in the industry should be in the position of equilibrium. All firms in the
industry must be producing an equilibrium level of output at which long run MC is equated to
long run MR. (MC = MR).
4. There should be no scope for entry of new firms into the industry or exit of old firms
from the industry. In brief, the total number of firms in the industry should remain constant.
5. All firms should be earning only normal profits. This happens when all firms equate AR
(Price) with AC. This will help the industry in attaining a stable equilibrium in the long run.
7. Long-run Firm Equilibrium under Perfect Competition

A competitive firm reaches the equilibrium position when it maximises its profits. This is
possible when:
1. The firm would produce that level of output at which MR = MC and MC curve cuts MR
curve from below. The firm adjusts its output and the scale of its plant so as to equate MC with
market price.
Price = MC = MR
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2. The firm in the long run must cover its full costs and should earn only normal profits.
This is possible when long run normal price is equal to long run average cost of production.
Hence,
Price = AR = AC
3. When AR is greater than AC, supernormal profits are earned. This leads to the entry of
new firms, increase in the total number of firms, expansion in the output, increase in the
supply, fall in the price and fall in the ratio of profits. This process will continue till supernormal
profits are reduced to zero. On the other hand, when AC is greater than AR, the industry will be
incurring losses. This leads to the exit of old firms, decrease in the number of firms, contraction
in output, rise in price, and rise in the ratio of profits. Thus, losses are avoided by automatic
adjustments. Such adjustments will continue till the firm reaches the position of equilibrium
when AC becomes equal to AR. Thus, losses and profits are incompatible with the position of
equilibrium. Hence,
Price = MR = MC = AR = AC
4. The firm is operating at its minimum AC making optimum use of available resources.
Fig. 5: Long run equilibrium

In the case of the industry, E is the position of equilibrium at which LRS = LRD, indicating OR as
the equilibrium price and OQ as the equilibrium quantity demanded and supplied.
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In case of the firm, P indicates the position of equilibrium. At P, LMR = LMC and LMC curve cuts
LMR curve from below. At the same point P, the minimum point of LAC is tangent to LAR curve.
Hence,
LAR = LAC
A competitive firm in the long run must operate at the minimum point of the LAC curve. It
cannot afford to operate at any other point on the LAC curve. Otherwise, it cannot produce the
optimum output or, it will incur losses.
Time plays an important role in determining the price of a product in the market. As the time
under consideration is short, demand will have a more decisive role than supply in the
determination of price. Longer the time under consideration, supply becomes more important
than demand in the determination of price.
The price determined in the long run is called as normal price and it remains stable.
Market price
Market price refers to that price which is determined by the forces of demand and supply in a
short period where demand plays a major role and supply plays a passive role. Market price is
unstable.
Normal price
Normal price is determined by demand and supply forces in the long period. It includes normal
profits also and it is stable in nature.
8. Summary
Here is a quick recap of what we have learnt so far:
• The organisation and functioning of a firm is determined by the type of market in which it is
operating.
• A market structure is characterised by the number of buyers and sellers, nature of the
commodity dealt with, the scope for entry and exit of firms and the determination of price.
• Perfect competition exhibits an ideal market situation, where there are a large number of
buyers and sellers, the commodity dealt with is homogeneous, there is free entry and exit
of firms into and out of the industry, and a uniform price prevails in the market.
• In the long run Price is equal to MR=AR=MC=AC. The firms can make normal profit only in
the long run.
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9. Glossary
Firm A single manufacturing unit producing and selling either a commodity
or service.
Industry All firms engaged in providing the same kind of service or doing a
common trade or business.
Market A commodity and buyers and sellers of that commodity who are in
competition with one another.
Market structure Economically significant features of a market, which affect the
behaviour, and working of firms in the industry.
Normal profits Profits which are just sufficient to ensure the firms stay in business.
Perfectly Market in which the number of buyers and sellers are large, all
competitive market engaged in buying and selling a homogeneous product without any
artificial restriction and, possessing a perfect knowledge of the
market at a time.
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Segment: Pricing in Mass Markets

Topic: Price Determination under Perfect Competition

1. Market and Market Structure ................................................................................................. 4

Case Let (Continued from previous topic)

At the end of this topic, you will be able to:

• differentiate between different types of market structures

• describe short-run and long-run concepts to price determination in perfectly

1. Market and Market Structure

Fig. 1: Types of Competition

ii) It is a mere concept, a myth, an illusion and purely theoretical in nature.

3. Summary Price – Output Determination under Perfect Competition

Table 1: Price Determination Based on Demand and Supply

Fig. 2: Equilibrium Output

Difference between a firm and an industry

4. Equilibrium of the industry and the firm under perfect competition

5. Short-run Firm Equilibrium under Perfect Competition

Fig. 3: Short term equilibrium

Fig.4: Short term equilibrium

6. Long-run Industry Equilibrium under Perfect Competition

7. Long-run Firm Equilibrium under Perfect Competition

Fig. 5: Long run equilibrium

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