3.3.4 Normal and Supernormal Profit Flashcards
1
Q
What is the condition for profit maximisation?
A
Occurs when MC intersects MR and MC is rising
2
Q
What is normal profit?
A
The minimum reward to keep an entrepreneur supplying their enterprise, it covers the opportunity cost of their investment that could of gone elsewhere
3
Q
What is supernormal profit?
A
The profit above normal profit level. This exceeds the opportunity cost of investing funds into the firm
4
Q
What is a loss?
A
When a firm fails to cover their total costs
5
Q
When does a firm ‘shut down’?
A
When price is less than average variable costs, when a firm cannot cover their variable costs
6
Q
Show the diagram for a short run shut down position for a firm?
A
