There are 300 purely competitive farms in the local dairy market. Of the 300 dairy farms, 298 have a cost structure that generates profits of $42 for every $600 invested.
a. What is the percentage rate of return for these 298 dairies?
b. The other two dairies have a cost structure that generates profits of $48 for every $400 invested. What is their percentage rate of return?
c. Assuming that the normal rate of profit in the economy is 10 percent, and firms cannot copy each others technology, will there be entry or exit? Will the change in the number of firms affect the two that earn $48 for every $400 invested?
What will be the rate of return earned by most firms in the industry in long-run equilibrium?
If firms can copy each other's technology, what will be the rate of return eventually earned by all firms?