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Kennedy Smith Perfect Competition (Normal and Supernormal Porfit (Normal…
Kennedy Smith Perfect Competition
Normal and Supernormal Porfit
Normal profit- occurs when the difference between a firms total revenue and total cost is equal to zero
Supernormal profit- profit of a firm over what provides its owners with a normal return to capital
Assumptions
Large number of firms
all firms produce identical products
free entry and exit
perfect information
Shutting Down
where P is less than AVC
Examples
Farming markets. Numerous farmers selling the same product BUT and the prices are nearly the same
Sunk Costs
a cost that has already been incurred and cannot be recovered
Profit Maximization
Find output level where MR=MC
Profit=TR/Q-TC/Q
Breaking Even
where MC and ATC lines meet
Limitations