b) Profit maximisation

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

to maximise profit

firms can make supernormal profit in the short-run when MC < MR

usually due to

• an increase in demand

  • D = AR = MR shifts upwards

• or a decrease in production costs

  • ATC shifts downwards

firms can make a loss in the short-run when MC > MR

usually due to

• a decrease in demand

  • D = AR = MR shifts downwards

• or an increase in production costs

  • ATC shifts upwards