Normal profit is a situation where a firm makes sufficient revenue to cover its total costs and remain competitive in an industry. In measuring normal profit, we include the opportunity cost of working elsewhere. When a firm makes normal profit we say the economic profit is zero. Normal profit = total revenue – total costs …
Monopoly Graph A monopolist will seek to maximise profits by setting output where MR = MC This will be at output Qm and Price Pm. Compared to a competitive market, the monopolist increases price and reduces output Red area = Supernormal Profit (AR-AC) * Q Blue area = Deadweight welfare loss (combined loss of producer …
Definition – Price discrimination involves charging a different price to different groups of people for the same good. For example – student discounts, off peak fares cheaper than peak fares. Different Types of Price Discrimination 1. First Degree Price Discrimination This involves charging consumers the maximum price that they are willing to pay. There will …
An assumption in classical economics is that firms seek to maximise profits. Profit = Total Revenue (TR) – Total Costs (TC). Therefore, profit maximisation occurs at the biggest gap between total revenue and total costs. A firm can maximise profits if it produces at an output where marginal revenue (MR) = marginal cost (MC) Diagram …
A look at factors that determine an individuals supply of labour and the market supply of labour. Higher wages usually will encourage a worker to supply more labour because work is more attractive compared to leisure. Therefore the supply curve for labour tends to be upwardly sloping. However, a worker isn’t just interested in earning …
Competition is an essential element of market economies. Different firms have the freedom to attract customers based on price, quality, service and convenient. The type of competition will depend on the product and market structure. For example, in a market with many traders selling potatoes, price will be a key factor. Consumers will shop around …
A competitive market implies many firms and a freedom of entry and exit and many firms seeking to attract customers. On the one hand, competitive markets will create an incentive for firms to develop new and better products. However, the lack of supernormal profit may make investment in research and development difficult. How competitive markets …
