Theme 3.3.4

Question 1

When is supernormal profit made

Answer 1

AR>AC

Question 2

When is normal profit made

Answer 2

AR= AC

Question 3

When is a loss made?

Answer 3

AR<AC

Question 4

What is the break even condition (SR shut down point)

Answer 4

AR=AC

Question 5

What is the short run shutdown condition?

Answer 5

AR=AVC

Question 6

In the short run, even if a firm is making a loss, it will stay in the market if:

Answer 6

Price > AVC

The firm is covering some of its AVC and making money from each sale so in the long run they’ll be able to pay off their fixed costs to then make profit

Question 7

In the short run is price<AVC ..

Answer 7

The firm will leave the market because it’s not covering its AVC. It’s make a loss on every unit sold = shutdown

Question 8

In the SR, if a loss making firm’s AR>AVC, the firm will stay in the market because…

Answer 8

It’ll still be making money on each sale. The firm will use this money to pay off its fixed costs, break even and eventually make profit in the long run. So it will stay in the market and wait to make long run profits.

Question 9

In the long run, above the LR shut down point when AR> ATC….

Answer 9

The firm will stay in the market because it’s covering its ATC

Question 10

What is the long run shut down condition

Answer 10

AR=ATC

Question 11

Why is the long run shut down condition where AR=ATC