Th3.3: Normal Profits, Supernormal Profits and Losses Flashcards
1
Q
What are profits?
A
the difference between revenue and costs
2
Q
What is normal profit?
A
the return that is sufficient to keep the factors of production committed to the business
3
Q
In economics, costs include…
A
the level of profit needed to keep the producer in the market and to cover the opportunity cost - therefore, if the firm covers its cost it earns normal profit - at the point where AR = AC or TC = TR
4
Q
If the profit is greater than normal profit…
A
it is earning supernormal, abnormal or monopoly - occurs when AR > AC or TC > TR
