LS5

Question 1

When does normal profit occur and what is it?

Answer 1

When total revenue=total cost

Is the minimum level of profit earned if FOP are to be kept in current use in the long run

Question 2

What is supernormal profit

Answer 2

When total revenue > total cost

Question 3

What is the profit maximising level?

Answer 3

Where TC is furthest from TR
If MR>MC the firm should increase output because more profit
Same for reverse
Profit maximising Level is when MC=MR

Question 4

What/when is a shutdown point?

Answer 4

When a firm is not covering its average variable costs(short run)
If a firm isn’t making normal profit in the long run (covering all costs) it should close

Question 5

Shutdown points in the short run?

Answer 5

In the short run a firm can make a loss as long as it covers variable costs
If TR>Total variable costs the firm can contribute to fixed costs, so if a firm closes there will be no contribution so higher loss

If TVC>TR close immediately as loss is increasing