3.3.4 Normal Profits, Supernormal Profits & Losses Flashcards
1
Q
Explicit Costs
A
Must be paid, like raw materials or wages
2
Q
Implicit Costs
A
Opportunity costs, the next best alternative for resources.
3
Q
Rational Resource Allocation
A
Entrepreneurs reallocate when greater profits are available elsewhere
4
Q
Profit Formula
A
Profit = TR-TC
5
Q
Normal Profit Definition and Formula
A
Breaking Even
TR = TC
6
Q
Supernormal Profit Formula
A
TR > TC
7
Q
Losses
A
TR < TC
8
Q
Short Run Shutdown Point
A
If selling price (AR) falls to AVC it should Shut Down
9
Q
Long Run Shutdown Point
A
If AR is equal or lower than AC it should shut down
