Profit

Question 1

Operating Profit

Answer 1

Profit used to operate the day to day running of the business

Question 2

Operating Profit Margin

Answer 2

(Operating Profit / Revenue) * 100

Question 3

Break-even Point

Answer 3

TC = TR (Make no profit or no loss)

Or

FC / (Selling price per unit - VC per unit)

Question 4

Normal Profit definition and equation

Answer 4

Normal Profit is the minimum a firm must receive to be able to operate.

TR - TC = 0
OR AC = AR

Question 5

Supernormal / Abnormal Profit definition and equation

Answer 5

Profit greater than normal profit

TR - TC = >0 (TC including opportunity cost)

Question 6

Accounting Profit

Answer 6

Profit = TR - TC

Question 7

Profit Maximising Level of Output

Answer 7

When TR and TC is at their greatest difference

OR When MC = MR

Question 8

Margin of Safety

Answer 8

When TR > TC

Margin of safety is how much of output or sales level can fall before reaching its break-even point

Question 9

Sales Maximisation

Answer 9

AC = AR (Normal Profit)