Does the price level in a competitive market have to be at the intersection of the Average Cost curve and the Marginal Cost curve? I could see that if the price level is say lower than the intersection point , then firms won't be able to operate , but what is wrong with the price level being above the intersection point of the AVC and the MC . 

IN that case firms would earn positive profit , although I know that this not happen in a competitive market , but I fail to grasp what stops this from happening ?

That is why won't the competitive market function well enough if the price level would be higher than the intersection point ?

I thought then the positive profits would make the other firms come in , however I could;t quite make the whole connection as to how would it drive the price level down !
One of the assumptions of perfect competition is that firms are price takers. Ultimately price is determined by the quantity of goods supplied, and with perfect competition, there are infinite (or an arbitrarily large) number of firms, so a firm that changes their price by itself will simply have no business, since there are cheaper places to buy from. The quantity supplied will also not change, and will leave the prices unchanged.

So what happens if all infinite of these firms tried to unilaterally raise their prices to the same level? This is maybe in some cases a Nash equilibrium, but not a coalition-proof Nash equilibrium. So firms could also unilaterally deviate from the higher price to take the whole market between themselves.



If price (marginal benefit), was suppose, forced to be higher, so that you moved along the marginal cost curve where MC $\neq$ ATC, then the supply curve would shift, because the optimal production quantity would increase for all firms at this price control. And the market would then not clear.