Normal Profits, supernormal profits and losses

Profit maximisation occurs when

MC=MR

Normal profit

enough profit to ensure the survival of the firm, occurs when the difference between a company's total revenue and combined costs are equal to zero.

Normal profit diagram

When does short run shutdown point occur

when average variable costs equal average revenue

if AR > AVC

then each additional unit sold will reduce the size of any losses and go towards covering fixed costs

Firms will shut down when AVC>AR because

because every additional unit sold will add to losses.

supernormal profit diagram

when does long-run shut down point occur

when average total costs equal average revenue

If AR>ATC then each additional unit sold will what

add to profits

Firms will shut down when ATC>AR, because every additional unit sold, will what

add to losses