3.4 Normal/ Supernormal Profits & Losses Flashcards
1
Q
What is normal profit?
A
Minimum profit needed to keep factor inputs in use in the long run
AR=AC
2
Q
What does normal profit reflect?
A
Opportunity costs
3
Q
What is supernormal profit?
A
More profit than normal profit
AR>AC
4
Q
What is sub-normal profit?
A
Economic loss
5
Q
Importance of Profit?
A
- Finance for investment
- Incentive for new firms
- Signals economic health
6
Q
What is the short-run shutdown point?
A
AR=AVC
7
Q
What is the long-run shutdown point?
A
AR=AC
