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Unformatted text preview: However, if the actual profit of a firm is only 6 percent then it is suffering sub normal profit (loss). In a competitive market, super normal profits are competed with and eliminated. Firms suffering subnormal profits may have to close down in the long run. The competitive rule permits only normal profits to all the firms in the long run. Profit = TR - TC When TR = 100 and TC = 80 Profit = 100 - 80 = 20 Super Normal When TR = 100 and TC = 100 Profit = 100 -100 = 0 Normal When TR = 100 and TC = 120 Profit = 100 -120 = -20 Sub Normal Normal profit rate is governed by the general expectations of a firm. It is usually equal to current market rate of interest. In that sense it is an opportunity cost of capital resources....
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This note was uploaded on 11/26/2011 for the course ECON MICRO ec 201 taught by Professor - during the Fall '10 term at Montgomery.
- Fall '10