Costs & Revenue: Profit

Question 1

Fall in fixed costs = AC shifts ____

Answer 1

Down

• No change in profit maximising output and price
• Increase in supernormal profits

Question 2

Fall in variable costs = AC and MC shift ____

Answer 2

Down

• Profit maximising output increases, profit maximising price falls
• Increase in supernormal profits

Question 3

Decrease in revenue = AR and MR shift ____

Answer 3

Inwards

• Profit maximising output falls, profit maximising price falls
• Decrease in supernormal profits