dear Andrew,
Please refer to the example which I took in the reply to Massimo.
The so-called equalization of the profit rates should refer to the
profit rates based on the present replacement costs and returns.
His actual profit rate was 80/180. In terms of replacement costs,
he got the gain 20 compared to the 80/160 (he actually won 100 as
the profit). What profit rates are to be equalized? The historical,
individually gained profit rates? Or the objectively computed rates?
I still think what is relevant is the 80/160, which should rule in the
next period. Moreover, I do not think he could get the profit 100,
he is still pressed by the latent (to-be-appeared) cheap products.
He would have to sell his products below the production price even
before the cheap products come out on the market.
Cheers,
Chai-on