Profit and loss

Question 1

Formula for accounting loss (non-economic)

Answer 1

TR-TC

Question 2

Definition of normal profit

Answer 2

Normal profit- return needed for a firm to stay in the market in the long term(to make enough profit to cover the opportunity cost of lost profit from other ventures)

Question 3

Defintion of supernormal profit

Answer 3

Profits above normal profit

Question 4

Formula of economic cost

Answer 4

Total cost + opportunity cost

Question 5

What happens if accounting profit is lower than opportunity cost??

Answer 5

The firm would be better off using their resources elsewhere; they would leave the market

Question 6

How is total profit shown on a price taker diagram

Answer 6

Elasticity of supply perfectly elastic and above the average cost curve. Qo multiplied by difference between Po and ACo

Question 7

How is total profit shown on a price maker diagram??

Answer 7

Where marginal revenue hits MC, Q0 is drawn down from this, and the line is extended up through the AC curve and to the AR/D0 curve. where it hits this is the P0 line, and where it intercepts the AC is where the AC per unit is. The difference between these lines multiplied by Q0 is the total profit.