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Economics 3.3.4

Economics- Edexcel 3.3.4

QuestionAnswer
Normal profit minimum profit needed to keep factor inputs in their current use in the long run and reflect the opportunity cost of using money to finance a business
When is a business making normal profits? if price per unit at least covers average cost so P=AC
Supernormal profit other name abnormal profit
Supernormal profit profit achieved more than normal profit when P > AC
What happens to other firms when firms are making abnormal profits in a market? there is an incentive for them to enter the market
Sub-normal profit profit that is less than normal so P < AC
Other name for sub-normal profit economic loss
Increase in variable cost causes what to shift and what to happen to profits? an upward shift in MC and AC causing a fall in profits
Overhead costs fixed costs
When will a firm supply products in the short run? if price per unit > or equal to average variable cost
Why do firms stay in the market providing P>AVC? there is a contribution being made to covering the fixed costs of production
Shut-down price the conditions and price where a firm will decide to stop producing
What must businesses make in the long run to justify remaining in the industry? at least normal profits
Why can firms survive while making a loss in the long run? managers are satisficing or an economic downturn is seen as temporary or losses are cross subsidised by profits in another sector/market
Why does the supply curve normally slope upwards? higher market prices should stimulate an expansion of supply
Created by: jessharris
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