| What is the Formula for Profit?
-What is noteworthy of TC? | -Profit is Total Revenue - Total Costs
-Total Costs represents Money Costs and Opportunity Costs (Ie, if they used their Factors of Production for something else) |
| What is Normal Profit? | -Normal Profit is when TR = TC
-This is an Economic Profit of 0, but not Necessary a Money Profit of 0. This means the Opportunity Cost covers the Gap
-If the Extra Revenue is Smaller than the Opportunity Cost, then the Firm is Better off if the Factors of Production was in another use
-Normal Profit is the Minimum Level of Profit that is Required to keep Resources in the current state for the Long Run |
| What is Supernormal Profit? | -This is when TR > TC
-The Revenue made is Greater than other way from using the Factors of Production
-Supernormal Profit provides an Incentive for other Firms to enter the Industry |
| What would a Firm do if TR is Above TVC (Total Variable Costs) in the Short Run? | -The Firm will keep on Producing in the Short Term
-The Revenue made (Gross Profit) can be used to Pay the Fixed Costs and so keep on Existing. Stopping Production makes the Firm even Worse |
| What would a Firm do if TR is Below TVC in the Short Run? | -The Firm will Immediately Shut off Production
-Continuing to Produce only makes the Situation worse. The Costs of actually Producing is not being Met ie -ve Gross Profit |
| What are Shutdown Points?
-In the Long Run, what happens if the Firm is below its Shutdown Points? | -Shutdown Points are the Points where MC = ATC {A} or AVC {B}(FC is included in ATC)
-If its below Shutdown Point A, The Firm should Leave the Market. The Losses the Firm has is Not Sustainable (Note, in the Short Run, it should Keep Production
-If its below Shutdown Point B, the Firm should Stop Production as the Variable Costs are not being Covered |
| What is the Profit Maximising Point? Explain using MR and MC | -When MR > MC then the Firm should Keep Producing More. The Revenue made is Greater than the Cost of Production
-When MR < MC then the Firm should Decrease Production. The opposite Occurs
-MC = MR is the Profit Max Output. |
| Why do Firms even want Profits? | -Used to pay Higher Wages to Ownders and Workers (Depends on Monospony Power)
-Profit used for Reserach and Development.
Profit can be used to ensure that it has Enough Money saved up in case of an Economic downturn, domestically or Internationally.
-Firms on the Stock Market will need Profit in order to support a Good value of their Stocks. It can also make the Firm less vulnerable to Takeovers. Finally Shareholders interests can be fulfilled and can encourage New Investors |
