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A firm in a purely competitive industry has a typical cost structure. The normal rate of profit in the economy is 5 percent. This firm

A firm in a purely competitive industry has a typical cost structure. The normal rate of profit in the economy is 5 percent. This firm is earning $5.50 on every $50 invested by its founders.

  • What is its percentage rate of return?
  • Is the firm earning an economic profit?If so, how large?
  • Will this industry see entry or exit?
  • What will be the rate of return earned by firms in this industry once the industry reaches long-run equilibrium?

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