Explain the role of profits that are above the floor rate of return (also referred to as “normal” profit rates or the cost of capital) in a highly fragmented industry that sells a product which consumers perceive as differentiated. Be sure to identify the rule to determine the level of output that will maximize profits or minimize losses. Be sure to differentiate between short run equilibrium for a firm operating in this industry and its expected long run equilibrium after firms have finished entering or exiting from the industry. It would be best to use graphical analysis to aid your explanation. Be sure to describe the overall market for the commodity and the costs and revenues for a representative firm. Give a real world example of this type of market. You do not have to draw graphs for the real world example, just for the theoretical one. If you choose not to use graphs to help answer the questions be sure your explanation is precise and logical. If you use graphs, be sure to explain what is happening. What viable strategies might one employ to earn economic profits in this industry? Answer all parts to this question.
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