A firm earns supernormal profit when its profit is above that a) earned by competing firms b) needed to cover its fixedcosts c) needed to keep the firm in production in the short run d) required to keep its resources in their present use
A firm produces at AVC = MC. What will happen initially to AVC and ATC as output rises?
AVC ATC dec dec dec inc inc dec inc inc
What causes the rise in the rate of interest from r1 to r2 (diagram showing 2 LPCs and fixed money supply. Movement to the right of the first LPC, rising interest rate)
a) an increase in national income b) an increase in the money supply c) a reduction in investment expenditure d) a reduction in the loans made by the private sector
Thanks a brief explanation would be handy, because i got these questions wrong and know the right answers, just can't work out why. Maybe if you have different answers, my friend was shouting out the wrong answers
A firm earns supernormal profit when its profit is above that a) earned by competing firms b) needed to cover its fixedcosts c) needed to keep the firm in production in the short run d) required to keep its resources in their present use
d) A definition of normal profit is that which is required to keep the firm's resources in their present use. Supernormal or abnormal profit is anything over and above that. It's similar to transfer earnings and economic rent for an individual.
Might be a) for the second one, higher natinoal income means higher demand for money, so LPC shifts right.
Ahh... silly me, normal profit recquired to stay in the industry in the long run!
Yes, it is a). I hate liquidity preference.... annoying topic. As higher income, shouldn't you demand less money? Because you need less of a proportion of your income?
You get paid Friday, and gradually use the money to buy things, so there is an average money holding. If you start the week with a bigger wage, the average money holding/demand for money, is higher.
You get paid Friday, and gradually use the money to buy things, so there is an average money holding. If you start the week with a bigger wage, the average money holding/demand for money, is higher.
Yes, I understand now Thanks.
Thats the third question, can you help on the second one?
Yea, thats why I put the answer as increasing and increasing. The answer scheme says increasing and decreasing. I don't understand how ATC can fall?? Doesn't it rise after the point where MC cuts AVC?
AVC must rise as you started at the minimum. ATC also rises, because it has reached a mimum already at a lower output. But I don't know why this happens. I'll let some else answer that.
Yea, thats why I put the answer as increasing and increasing. The answer scheme says increasing and decreasing. I don't understand how ATC can fall?? Doesn't it rise after the point where MC cuts AVC?
Yeh, it does in the diagram I have. Maybe there is something else happening.
AVC must rise as you started at the minimum. ATC also rises, because it has reached a mimum already at a lower output. But I don't know why this happens. I'll let some else answer that.
thanks for the rep.
So they should both rise? Thats what I have been thinking as well... but the answer says otherwise....