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Unformatted text preview: and Average Cost (AR -AC) condition. This leaves us with three possibilities. In an equilibrium with MR = MC, either i) AR > AC = Super Normal profits ii) AR < AC = Sub Normal profits, and iii) AR = AC = Normal profits. In the long run the presence of Super Normal profits will attract new firms. As new firms enter the market extra profits will be competed away . Similarly inefficient firms with higher costs will start exiting in search of some other opportunity. In the long run, after all adjustments are over only normal profits will be earned by all the firms. In that case not only the MR = MC but the AR = AC condition will also be satisfied by all firms....
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- Fall '10