Flashcards
Theory of the Firm
Cards in this deck (9)
- 1What does the green box symbolise?Profit/Super-normal Profit
(in the short-run) - 2What type of profit is being made is this scenario?Normal Profit/Zero Economic Profit
(It doesn't necessarily encourage people to leave or enter this industry)
- 3What does this green box symbolise?A loss/Negative Economic Profits
- 4What should the business do if price was = to or less than AVC?The business should stop operating.
- 5The Marginal Cost Curve (MC) is the....Short-run supply curve for the firm.
- 6What is the short-run shut-down rule?Only operate if average revenue (AR) is > than or = to average variable cost (AVC)
AR > = AVC - 7What does it mean when AR = ATC?There is normal profit.
- 8What does it mean P = MC?There is economic efficiency hence there is no DWL.
- 9CM: After super-normal profit has occurred, firms will continue to enter the market until...P = AR = MR = MC = AC
This means that in the long-run, in competitive markets, only normal profit can be made.