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Economics past paper help

Explain what is meant by ‘supernormal profits’ (Extract B, line 21) and analyse the likely effects on an electricity company of a one-off windfall tax that would take apercentage of its supernormal profits.[10 marks]I wouldn’t know how to write enough to gain most of the marks could I have a rough guide please
Reply 1
4 marks for explanation - explanation of both types profit and definition of windfall tax
4 marks for Analysis - application as to why the firm makes supernormal profit and how windfall tax affects it
2 marks for a graph - monopoly graph

Supernormal profit is profit that is in excess of costs meaning that total revenue made is more than the total costs indicating that it is above the break-even point. Whereas, normal profit is the minimum amount of profit required for a firm to cover its costs and stay in business.

analysis: since it's an electricity company it's most likely a collusive oligopoly and hence they produce at profit maximisation being MR = MC you can then draw the monopoly graph and show the area of supernormal profit.

Subsequently, when this supernormal profit exceeds a certain amount government imposes a windfall tax which becomes a source of government revenue but will have no effect on the equilibrium price of the firm as they will continue as profit maximisers.

Hope this helps- let me know if anything doesn't make sense.

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