Profit

• What is one function of profit in resource allocation?

  It allows the price mechanism to allocate resources
• How does profit provide an incentive for investment?

  It offers means for investment opportunities
• What does profit reward in entrepreneurial behavior?

  It rewards risk-taking behavior
• How can profit promote efficiency?

  By encouraging cost-cutting and innovation
• When does normal profit occur?

  When Total Revenue equals Total Cost
• What indicates supernormal profit?

  Total Revenue is greater than Total Cost
• What occurs when Total Revenue is less than Total Cost?

  A loss occurs
• What is the profit maximization quantity condition?

  Where Marginal Revenue equals Marginal Cost
• What is the Short Run Shut Down Point?

  When average revenue equals average variable cost
• What should a firm do if Price (AR) is greater than AVC?

  Stay in the market
• What does it mean if Price (AR) equals AVC?

  It indicates the Short Run Shut Down Point
• What action should be taken if Price (AR) is less than AVC?

  Shut down the operation
• What is the Long Run Shut Down Point?

  When average revenue equals average total cost
• What should a firm do if Price (AR) is greater than ATC?

  Stay in the market
• What does it indicate if Price (AR) equals ATC?

  It indicates the Long Run Shut Down Point
• What action should be taken if Price (AR) is less than ATC?

  Shut down the operation