3.3.4 - profits + losses

what is the point of profit maximisation

marginal cost (MC) = marginal revenue (MR)

basically because at that point there is 0 addition to profit of an extra good, and any more will actually take away from profit (P = TR - TC)

what two types of costs do economists consider

explicit costs - have to be paid

implicit costs - opportunity costs

what does total costs (TC) encompass

explicit + implicit costs

when does normal profit occur

when TR = TC

aka breakeven point

(includes cost of paying the entrepreneur)

when does supernormal profit occur

TR > TC

other names for supernormal profit (3)

pi

abnormal profit

economic profit

when does a loss occur

TR < TC

do firms always shut down as soon as they make a loss

no - sometimes they wait in hopes of changing market conditions

short run shut-down point

if AR ≤ AVC

short run = have to cover variable costs

long-run shut down point

AR ≤ ATC

long run = have to consider all costs