Profit

Question 1

Profit

Answer 1

Total revenue - total costs

Question 2

Unit profit

Answer 2

Average revenue - Average costs

Question 3

Normal profit

Answer 3

Average costs = Average revenue

Question 4

Accounting profit

Answer 4

Doesn’t include opportunity costs

Question 5

Supernormal profit

Answer 5

Any profit that is above normal profit
AR > AC

Question 6

Profit maximising condition

Answer 6

MC = MR

Question 7

Why is MR > MC not profit maximizing?

Answer 7

This is when the change in total revenue (when increasing output by one more unit) is greater than the change in total cost (when increasing output by one more unit)
- Therefore to maximize profits firms would have to produce more output

Question 8

Why is MR < MC not profit maximising?

Answer 8

This is when the change in total costs (when producing the last unit of output) is greater than the change in total revenue (when producing the last unit of output)
- Therefore to maximize profits firms would have to produce less output

Question 9

How do you find the profit maximizing condition on a diagram?

Answer 9

Find the point where MC = MR and go up to the AR curve which is where price will be set