Section 4 Revenue And Profits

Question 1

Total revenue

Answer 1

The money collected from the sale of g/s, it is dervived by multiplying the price of the good by the quantity of goods sold
TR= price x quantity

Question 2

Average revenue (AR)

Answer 2

Total revenue of the firm divided by the number of units sold. In other words, average revenue gives the price at which the firm sells each unit of its output
AR = TR ÷ Q

Question 3

Marginal Revenue

Answer 3

The change in total revenue from selling one more unit of output.
MR= ◇TR ÷ ◇Q

Question 4

What does profit serve as

Answer 4

The motivation for firms to produce g/s

Question 5

Normal profits

Answer 5

The minimum amount of profit that is necessary to encourage a firm to continue production in the long run. Normal profit is earned with average revenue is equal to average cost (AR=AC) or when TR=TC (total revenue = total cost)

Question 6

Abnormal profits

Answer 6

Also called supernormal profit, refers to only profit earned in excess of normal profit, this is also known as surplus profit or economic profits. If the total revenue earned by the firm is higher than total cost then abnormal profit is earned (TR>TC) also, when average revenue is greater than average cost (AR>AC)

Question 7

Losses

Answer 7

Arises when the firms average cost>average revenue (AC>AR). In this case, the firms AC curve lies above the AR curve. When the firm is making losses, they may choose to exit the industry as they are unable to continue production