LS5- Profit and Loss

Question 1

Normal profit

Answer 1

• TR = TC (breaking even)
• The minimum reward necessary to keep factors of production in their present use

Question 2

Supernormal profit

Answer 2

• If revenue > costs (private and opportunity)

Question 3

Shutdown points

Answer 3

• When the firm is not covering AVC

Question 4

On the graph, when will a firm shutdown and when will it continue to operate?

Answer 4

• 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)