Why would you expect one firm to make super normal profit while another makes losses while they operate under conditions of perfect competition?
In a perfectly competitive market, firms are price takers which mean that they have no bearing on the market price. The one making supernormal profit could be due to
- efficiency and old in business hence could be operating at optimal point where it incurs low cost of production
- expansion of its business on large scale hence enjoying economies of scale
The making losses could be due to
- inefficiency and being young in business and incurs high costs of production.
- Over expansion hence leading to diseconomies of scale
CATEGORIES Economics
TAGS Dr. Bbosa Science