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Unformatted text preview: Normal Profit The money that an investor could earn by investing elsewhere is the opportunity cost of capital (OCC). Normal profit is what a firm must earn to compensate investors for the OCC. Normal profit is not economic profit. A firm’s economic profit is its profit in excess of normal profit. Summary: Profit in the Very Long Run In the very long run, with free entry: • Firms earn only “normal profit.” • Economic profit is zero. 2 Barriers to Entry A barrier to entry is anything that allows a firm to earn economic profits indefinitely, because it keeps entrants out. • Created by government. • Absolute cost advantages. – Better technology. – Better access to inputs. • First-mover advantages. Three kinds of barriers:...
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This note was uploaded on 04/02/2008 for the course ECON 200 taught by Professor Cramer during the Spring '07 term at Arizona.
- Spring '07