Profit Flashcards
What is normal profit
The minimum profit needed to keep factor inputs in their current use in the long run
What do normal profits reflect
The opportunity cost of using funds to finance a business
What is sub-normal profit
Less than normal profit (price per unit < AC)
What are supernormal profits
Profits achieved in excess of normal profit (also called abnormal profits) - there is an incentive for other producers to enter a market
Why is profit important
Signals about health of the economy
What might rising profits reflect improvements in
Supply-side performance
What is marginal profit
The increase in profit when one more unit is sold
At what point does a firm maximise profit
MC = MR
What can be made in the short run
Economic losses
Key factors affecting profitability of businesses
Market competition
Growth of market demand
PED
Changes in cost factors
Profits in highly contestable markets
Lower prices and tendency towards normal profits because businesses must respond to actual / threat of competition
What are the two types of innovation
Product innovation
Process innovation
Microeconomic impact of E-Commerce
Size distribution of firms
Distribution channels
Profitability of businesses
Barriers to entry & exit
What is a pure play
A business that originated and does business purely through the internet e.g. Uber and Asos
Ways in which E-Commerce has cut barriers to entry
New ways of delivery
Cheaper for small businesses
Easier to internationally trade
