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Monday, 02 December 2013 17:18

Perfect Competition and Supernormal Profit

Perfect Competition and Supernormal Profit

Like any firm, perfectly competitive firms aim to profit maximise. Unlike other firms, the maximum amount of supernormal profit a perfectly competitive firm can make in the long run is zero. Supernormal or abnormal profit is any profit other than the payment you need to make to the entrepreneur for his services. In the short run it is possible to generate this sort of profit but in the long run the lack of barriers to entry mean that other firms will enter the market and compete away the profit.

This tutorial will talk you though drawing the diagram. Before you look at it I suggest that you make sure you are happy with the basic perfect competition diagram.  

Unfortunately at the moment the tutorials are only available using flash so they may not work on mobile devices.

 

Published in Diagram Clinic
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