3.3 - Profit Flashcards
1
Q
What are the conditions for profit maximisation?
A
MC = MR
2
Q
What are the 3 forms of profit a firm can generate?
A
Sub-normal profit
Normal profit
Supernormal/Economic profit
3
Q
What is normal profit?
A
Break even
Costs = Revenues
4
Q
What is sub-normal profit?
A
Profit is weaker than normal
Price per unit < Average cost
5
Q
What is supernormal profit?
A
Profit earned in excess of the normal
Price per Unit > AC
6
Q
How does supernormal profit act as an incentive?
A
Incentivises new firms to enter market
Attracted by prospect of economic gains
7
Q
Why is profit important?
A
Market entry
Finances capital investment + research
Signals economic health (Supply side)
