Profit Flashcards
What is economic profit?
It is a firms total revenue minus total economic costs
What is abnormal / supernormal profit?
Refers to positive economic arising when total revenue is greater than total economic costs
What is normal profit?
The minimum amount of revenue that a firm receives so that it keeps the business running
The amount that is needed to cover all economic costs
Profit is 0
What is Loss (negative profit)?
Refers to the difference between economic costs and total revenue of a firm when economic costs are greater than revenue
It is negative economic profit
What is shut down price?
It is the price at which a firm that is making losses will stop producing in the short run
What is the formula of shut down price?
When Price = Average Variable Cost
If the price is greater than AVC the firm will still continue producing even if its making a loss
What is the profit maximising point?
When Marginal Cost = Marginal Revenue
If Marginal Revenue is greater than Marginal costs the firm should increase production
