Exnomic Profit In The Short Run

Question 1

What does economic profit act as to new firms ?

Answer 1

Acts as a signal to new firms to enter the market which they are able to do due to absence of barriers to entry

Question 2

Where does it cause the market curves to shift ?

Answer 2

Supply shifts right from S1 to S2 and lowers the market price to p1

Firms face demand curve that is perfectly price elastic which shifts downwards

Firms profit maximises where MR=MC and do new price of P2and new output of q2

Question 3

In the short run of perfect competition is firm producing where they are productively efficient?

Answer 3

No,not producing where AC is lowest

Question 4

In short run is firm allocatively efficient in a perfect competition?

Answer 4

Yes where MR=MC (maximising utility )

Question 5

Where do profit maximisers always produce ?

Answer 5

Where MR=MC

Question 6

A firm leaves an industry due to not making normal profit what is being shifted?

Answer 6

Supply curve shifts left from S1 to S2

Increasing market price from p1 to p2

Shifting demand curve upwards to D2 =AR2=MR2

Question 7

Why might firms chose to shutdown?

Answer 7

Due to economic loss in the short run

Question 8

How does economic loss occur in the short run?

Answer 8

If AR is less than AVC producing additional unit will add more to total cost than to total revenue

and firms will make greater loss producing than not producing