Microeco 2.3 Flashcards
Profit formula:
Profit = Total revenue - Total cost
Where is Normal profit
Total revenue = Total cost - Just enough to stay in the market
When is there a loss
When total revenue is smaller than total cost
Where is supernormal profit
When total revenue is greater than total cost
Whilst MR is greater than MC, each sale ________ profit until __________ where additional profit = 0
Increases
MC = MR
How to find the profit maximising price
Up from MR = MC and across from AR
What affects whether a firm makes a profit to a loss
How greater AC is compared to AR
Why would a firm stay in the market if they are making a loss
In the short run, they will stay if price is greater than Average variable costs as they are making a profit with every unit sold
Where is the short run shutdown point
Where Price = AVC
Since all factors of production are variable in the long run, ATC = _____
In the long run ATC = AVC
Who are the influencers of the firm
Owners Shareholders Managers / directors Workers Consumers
Where is revenue max
MR = 0
Where is sales max
AR (Price) = AC
- Most sales possible without making a loss
What is profit satisficing
Making enough to keep shareholders happy / sufficient for investors to maintain confidence
Reasons why firms grow
- Make more sales and profit
- Increase market power
- Diversify and enjoy risk-brain Eos
- Interanal Eos
- Owner’s objectives
Reasons why firms don’t grow
- Firms don’t have finance to start up
- Regulation
- Niche markets
- Diseconomies of scale
- Some owners may prefer to profit-satisfice
What is the principal-agent problem
When the agent pursues different objective to the principal
