48) Profit

Question 1

What is the full formula for profit?

Answer 1

(P x Q) - (TFC + TVC)

Question 2

What is normal profit?

Answer 2

A situation where a firm makes sufficient revenue to cover its total costs and remain competitive in the industry

Question 3

What is abnormal (supernormal) profit?

Answer 3

Abnormal (supernormal) is all the excess profit a firm makes above the minimum return necessary to keep a firm in business

Question 4

How do firms determine how much to make so that profits are maximised?

Answer 4

If MC is smaller than MR then we should make and sell the extra unit
If MC is bigger than MR then we should NOT make and sell the extra unit
Overall, when MC = MR then profits are maximised

Question 5

How do we determine whether profit is being made by cost and revenue curves?

Answer 5

When TR is greater than TC abnormal profits are being made.
When MC = MR the distance between TR and TC is at its biggest (profits are maximised)