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Economics 3.3.4 - Coggle Diagram
Economics 3.3.4
strategies to increase profit
reduce fixed costs so that ATC falls
increase labour productivity by training them
find new customers in new markets
if demand is PED elastic, drop prices
make a different product that is more PED inelastic and YED elastic
long run shut down points
make normal profits to stay open
if AR < AC, firm will shut down
relative to opportunity cost
firms can survive making a loss due to satisficing or if economy is in downturn temporarily
types of profit
normal
minimum profit needed to keep factor inputs in use in LR
reflect opportunity costs
supernormal
incentive for other firms to enter the market
AR > AC
profit achieved in excess of normal profits
subnormal
profit less than normal profits
AR < AC
economic loss
importance of profit
finance for capital investment and research e.g. pharmaceutical company
increases flow of factors of production to where a good is being made efficiently
signals for other firms to enter the market
short run shut down points
AR = AVC or AR > AVC to stay open
contribution to pay off fixed costs
if AR < AVC, firm will shut down