LS5 : Profit and Loss

Question 1

what is the equation for profit?

Answer 1

revenue - costs

Question 2

what is revenue also equal to?

Answer 2

private costs

Question 3

what is costs also equal to?

Answer 3

opportunity costs

Question 4

what is normal profit?

Answer 4

when revenue and costs are equal

Question 5

what is supernormal profit?

Answer 5

when revenue exceeds costs

Question 6

how does a firm with no pricing power choose output levels to maximise profits?

Answer 6

choose the output level at which total revenue is the furthest above the total cost curve as possible eg. at q0

Question 7

how do all firms decide what qty to produce to maximise profits?

Answer 7

when MC = MR. if selling an extra unit fails to cover the cost of producing extra unit, profit maximisation point has been passed

Question 8

what is the shutdown point?

Answer 8

when firms are not able to cover average variable costs

Question 9

where is the short-run shutdown point?

Answer 9

when price is below where AVC and MC intersect

Question 10

where is the long-run shutdown point?

Answer 10

when price is below where ATC and MC intersect