3.3.4 Normal Profits, Supernormal Profits & Losses

Question 1

Explicit Costs

Answer 1

Must be paid, like raw materials or wages

Question 2

Implicit Costs

Answer 2

Opportunity costs, the next best alternative for resources.

Question 3

Rational Resource Allocation

Answer 3

Entrepreneurs reallocate when greater profits are available elsewhere

Question 4

Profit Formula

Answer 4

Profit = TR-TC

Question 5

Normal Profit Definition and Formula

Answer 5

Breaking Even

TR = TC

Question 6

Supernormal Profit Formula

Answer 6

TR > TC

Question 7

Losses

Answer 7

TR < TC

Question 8

Short Run Shutdown Point

Answer 8

If selling price (AR) falls to AVC it should Shut Down

Question 9

Long Run Shutdown Point

Answer 9

If AR is equal or lower than AC it should shut down