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Show with the help of a diagram, how a perfectly competitive firm earns supernormal profit in short-run equilibrium.

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The price is fixed at P in short-run (AR = MR). The MC passes through the minimum point of SAC curve and cuts MR at R. The firm decides its output at OQ.

Thus the total revenue TR is vector P x Q = O vector PRQ. The total cost (TC) for producing OQ output = OTSQ. Thus, the supernormal profit = TR – TC

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