Economics 3.3.4 Word Scramble
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| Question | Answer |
| 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 |
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jessharris
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