Normal Profit, Abnormal Profit And Losses Flashcards
1
Q
What is profit
A
The difference between revenue and costs
2
Q
What is normal profit (4)
A
TR = TC
AR = AC
Profits to survive in long run
Cover the dividends
3
Q
What are abnormal profits (2)
A
Profits above normal
TR greater than TC
4
Q
Conditions needed for profit max (2)
A
MC uppercuts MR
MC=MR
5
Q
What is a loss
A
A firm has an increase in costs and reduce in revenue
6
Q
Loss on a diagram (2)
A
When there’s a shift in MC AC or AR MR
New profit max point = AC greater than AR
7
Q
Why are AR and MR falling
A
We assume prices are falling
8
Q
Why are AC and MC rising
A
Law of diminishing returns
9
Q
Shut down point in short run
A
Firms will continue production in the short run so long as they cover their variable costs
