ECONOMICS
PROFIT
|
Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
|
|
|
Yes, I understand this from the notes
|
|
|
No, I don’t understand this from the notes
|
|
|
No, I don’t understand this, as I have not read the notes
|
|
|
None of the above
|
Detailed explanation-1: -The intersection of the average variable cost curve and the marginal cost curve, which shows the price where the firm would lack enough revenue to cover its variable costs, is called the shutdown point.
Detailed explanation-2: -In a perfectly competitive market, firms can only experience profits or losses in the short run. In the long run, profits and losses are eliminated because an infinite number of firms are producing infinitely divisible, homogeneous products.
Detailed explanation-3: -If a firm is unable to cover its fixed costs in the long-run, then the firm must exit the market. Inability to cover fixed costs will eventually lead to bankruptcy. While a firm can operate in a short-run loss this must improve at some point to remain in the market.
Detailed explanation-4: -A firm shut’s down temporarily when it can’t cover its variable cost, but it exits the industry for good when it’s economic profits are negative. In this video, learn more about how to use a graph of cost curves to determine when a firm shuts down, enters an industry, or exits an industry.
Detailed explanation-5: -Perfect competition in the long-run In perfect competition, there is freedom of entry and exit. If the industry was making supernormal profit, then new firms would enter the market until normal profits were made. This is why normal profits will be made in the long run.