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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 firms 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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- Spring '07