3.3.4 Normal & Supernormal Profits, and Losses Flashcards
1
Q
Normal profit?
A
TC = TR (breaking even)
The minimum reward necessary to keep factors of production in their present use
2
Q
Supernormal profit?
A
If revenue > costs (private and opportunity)
3
Q
Profit =
A
Revenue - costs (private and opportunity)
4
Q
Profit maximisation on graph?
A
Where TR is as far above TC as possible
or MR = MC
5
Q
Shutdown points?
A
When the firm is not covering average variable costs
6
Q
On the graph, when will a firm shutdown and when will it continue to operate?
A
Operates when MC above AVC
SR: Shuts down if it cannot cover AVC (price below AVC)
LR: Shuts down if it cannot cover AC (price below AC)
