Economics- Edexcel 3.3.4
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| 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
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| When is a business making normal profits? | if price per unit at least covers average cost so P=AC
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| Supernormal profit other name | abnormal profit
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| Supernormal profit | profit achieved more than normal profit when P > AC
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| What happens to other firms when firms are making abnormal profits in a market? | there is an incentive for them to enter the market
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| Sub-normal profit | profit that is less than normal so P < AC
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| Other name for sub-normal profit | economic loss
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| 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
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| Overhead costs | fixed costs
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| When will a firm supply products in the short run? | if price per unit > or equal to average variable cost
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| Why do firms stay in the market providing P>AVC? | there is a contribution being made to covering the fixed costs of production
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| Shut-down price | the conditions and price where a firm will decide to stop producing
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| What must businesses make in the long run to justify remaining in the industry? | at least normal profits
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| 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
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| Why does the supply curve normally slope upwards? | higher market prices should stimulate an expansion of supply
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