Year 13 Flashcards
Where normal profit occurs on the graph
Where AC=AR
What happens when a firm earns super normal profits?
If a firms earns more than normal profit, other firms are attracted to join the industry. This causes a rise in supply for the market structure, which in turn lowers the price and the firm once again earns normal profit
When will a firm remain in production in the short run?
As long as a firm can cover the variable costs of production, even if they are still making a loss overall (revenue
What is the supply curve in the short run?
The MC curve, above the average variable cost curve
Where allocative efficiency occurs on the graph
When P=MC
Allocative efficiency definition?
The optimum allocation of scarce resources that best accords with the consumers pattern of demand
Productive efficiency definition?
When a firm operates at the minimum average total cost, producing maximum possible output from inputs into the production process
Where productive efficiency occurs on the graph?
AC=MC
Dynamic efficiency definition?
Efficiency over time. When a firm invests new stock/ capital…
Which efficiencies are static?
Allocative/ productive
Normal profit definition
The minimum amount of profit required to keep the factor of production employed in current activity
Total costs= total revenue
