Profit and its Maximization in Economics

The video tutorial explains the difference between accounting and economic profit, highlighting the role of opportunity costs. It covers how to calculate profit by subtracting total costs from total revenue and represents this graphically. The concept of profit maximization is explored, showing how firms can achieve it by equating marginal revenue with marginal cost. The tutorial also discusses normal and supernormal profits, providing a comprehensive understanding of profitability in business.

What is the primary difference between accounting profit and economic profit?

• Accounting profit includes opportunity costs, while economic profit does not.

• Economic profit is always higher than accounting profit.

• Economic profit includes opportunity costs, while accounting profit does not.

• Accounting profit is always higher than economic profit.

In the context of a sole trader, what is considered an opportunity cost?

• The revenue generated by the business.

• The total production costs.

• The dividends distributed to shareholders.

• The salary given up to start the business.

What does normal profit indicate in a business?

• The business is making supernormal profit.

• The business is covering all its costs.

• The business is making a loss.

• The business is not covering its opportunity costs.

Which curves are essential to represent profit diagrammatically?

• Average cost and average revenue curves.

• Marginal cost and marginal revenue curves.

• Total cost and total revenue curves.

• Supply and demand curves.

At what point is profit maximized for a firm?

• When total revenue is less than total cost.

• When marginal revenue equals marginal cost.

• When total cost is minimized.

• When average revenue equals average cost.

What happens when marginal revenue is greater than marginal cost?

• The firm should decrease output.

• The firm should increase output.

• The firm should shut down operations.

• The firm should maintain current output.

What is supernormal profit?

• Profit that covers only fixed costs.

• Profit that exceeds normal profit.

• Profit that is less than normal profit.

• Profit that equals total revenue.

How does a decrease in demand affect the profit maximization point?

• It increases the level of output.

• It decreases the level of output.

• It has no effect on the level of output.

• It increases the price of the product.

What is the result when average costs are greater than average revenue?

• The firm incurs an economic loss.

• The firm makes a normal profit.

• The firm makes a supernormal profit.

• The firm breaks even.

What does it mean if a firm is making an economic loss?

• The firm's total revenue is greater than total costs.

• The firm's average costs are less than average revenue.

• The firm's average costs are greater than average revenue.

• The firm's total costs are equal to total revenue.