b) Profit maximisation

b) profit maximising equilibrium in the short run and long run

c) diagrammatic analysis

to maximise profit → MC = MR at the output level

firms can make supernormal profit in the short-run when ATC < AR

usually due to

• strong product differentiation

  • D = AR and MR become more inelastic and shift right

• or a decrease in production costs

  • ATC shifts downwards

firms can make a loss in the short-run when ATC > AR

usually due to

• weak product differentiation

  • D = AR and MR become more elastic and shift left

• an increase in production costs

  • ATC shifts upwards