ABSTRACT
The subtitle of this chapter may sound a contradiction in terms. In the traditional economic theory, by which I include both classical and neoclassical economics, the long-run state of an economy is an equilibrium state and the long-run profits (if they ever exist) are equilibrium phenomena. Figure 7.1 illustrates this by drawing two supply curves that can be found in any textbook of economics. In the upper panel is an upward-sloping supply curve which aggregates diverse cost conditions of the existing firms in an industry. Its intersection with a downward-sloping demand curve determines an equilibrium price, which in turn determines the amount of profits (represented by the shaded triangle) accruing to the industry as a whole. As long as the supply curve is upward-sloping, an industry is able to generate positive profits.
