Profit
Profit max- Profit will be maxed when the cost of the last unit equals the revenue of the last unit. (MC=MR)
Average cost- the total cost to produce at a certain amount. (both fixed cost, or the costs that don't change with more production, and marginal cost which is the costs that change with how much the firm produces.)
Normal profit- When the market price equals the average cost. The firm will break even.
Abnormal profit- when the price is above the average cost.
Loss- when the price is below average cost.
When a firm first innovates something it will have large abnormal profits because there will be no substitutes in the short run. Eventually firms will see an advantage to enter the market and Marginal revenue will fall. The firms will start experiencing a loss and some will drop out of the market moving the marginal revenue up to where MC=MR.
Profit max- Profit will be maxed when the cost of the last unit equals the revenue of the last unit. (MC=MR)
Average cost- the total cost to produce at a certain amount. (both fixed cost, or the costs that don't change with more production, and marginal cost which is the costs that change with how much the firm produces.)
Normal profit- When the market price equals the average cost. The firm will break even.
Abnormal profit- when the price is above the average cost.
Loss- when the price is below average cost.
When a firm first innovates something it will have large abnormal profits because there will be no substitutes in the short run. Eventually firms will see an advantage to enter the market and Marginal revenue will fall. The firms will start experiencing a loss and some will drop out of the market moving the marginal revenue up to where MC=MR.