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What are the three conditions for profit maximisation in the short run?
What are the three conditions for profit maximisation in the short run?
MR = MC, P > ATC, and ATC < P
What are the three conditions for profit maximisation in the long run?
What are the three conditions for profit maximisation in the long run?
The abnormal profit will disappear, increases supply in the industry, reduces demand for other firms
In the long run, what will happen to the abnormal profit?
In the long run, what will happen to the abnormal profit?
The abnormal profit will disappear
What happens in the long run, in terms of supply, in the industry?
What happens in the long run, in terms of supply, in the industry?
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What happens in the long run, in terms of demand for other firms?
What happens in the long run, in terms of demand for other firms?
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Study Notes
Profit Maximisation in the Short Run
- Profit is maximised when marginal revenue (MR) equals marginal cost (MC).
- If price (P) is greater than average total cost (ATC), the firm will make abnormal profit.
- If ATC is greater than P, the firm will incur losses.
Profit Maximisation in the Long Run
- In the long run, abnormal profit will disappear.
- Supply in the industry increases.
- Demand for other firms reduces.
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