Submitted to the Foculty of Groduqte Studies ond Reseorch in portiol ...

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ony cose the incr€osed product supply is tikety to reduce its
morket price, Thus excess profit will in the end be squeezed do\dn
to zero. SimiJ.orly, if there is initiol"ly o net loss to ooncerns
in the industry, the exit of some of them witl roise profits,
ond ultimotely eliminote the loss.
This conclusion, of coursel holds only if there ore no
outonomous chonges in demqnds or costs during the odjustment
period:, For exomple, q crop fqilure obrood or improved e!uipment
might restore high profits to forming ond offset the influence '
of n€w gntronts. In foct, such chonges ore olwoys tokiñg irplqce,
!1
so thot odjustment to zero excess profit will os q rule bie
imperfect, But the forces working in thot direction will
nonetheless be present.
As o consequence, we hove o long-¡r,¡¡ equilibrium position
with this impressive set of equolities: MC - MR - AC - AR - p.
It is o'no profit, no loss' situotion - the firms hove onLy on
occounting profit, known os normol profit, equol to th€ r:ote of
return obtoinqble in other perfectly competitive industrles.
Now, it con be shown, with the r€s€rvotion of externolities,
thot perfect competition in qtl morkets witl leod to o position
of mqxÍmum sociql \¡tre I f ore, cs def ined by the three 'morginql ,
condití,ons or Pqreto-opt imol i ti es. The proof rests upon the
moximizing behoviour of consumèrs qnd producers.
FirstIy, the morginol condition for exchonge requires thot
the MRS (morginol rote of substitution) between ony poir.of
goods be the some for oll consumers. To moximize sotisfq;tion