Profits

Question 1

Profit formula

Answer 1

TR - TC

Question 2

Cost from profit formula

Answer 2

Revenue - profit = costs

Question 3

Normal profits how to detect on a diagram

Answer 3

AR = AC

Question 4

Super Normal profits how to detect on a diagram

Answer 4

AR>AC
Or AR>ATC

Question 5

Loss how to detec on diagram

Answer 5

AR<AC

Question 6

What do we assume in the short run for business about avc

Answer 6

Question 7

Short run diagram for shut down price

Answer 7

They are making a contribution towards a fixed cost by selling each additional unit

Question 8

Answer 8

Question 9

Answer 9

As more firms enter, the supply increases, which drives down the market price. This process continues until the price equals the average cost, eliminating profits and leading to a new long-run equilibrium where firms make zero economic profit.
- The price will fall due to the entry of new firms, increasing supply.
- As the price falls, firms adjust their output to where marginal cost equals the new market price, typically leading to a decrease in individual firm output as the price lowers to the level of average cost.

Question 10

Answer 10

The fact that average cost decreases as more units are produced, despite rising marginal costs, suggests that marginal cost remains below the average cost. When marginal cost is below average cost, it pulls the average cost downward. However, as marginal cost starts to rise and approaches the average cost, the rate of decrease in average cost slows down.