Revenue and Profit

Subnormal and supernormal profits are only experienced in the short run and only by firms in perfect competition.

With the help of diagrams, evaluate this statement.

A city bus company proposes to reduce passenger fares.

Explain whether consumers always buy more of a good at a lower price than a higher price. Consider what might be the effect on demand for bus journeys and the revenue of the bus company of the lower fares.

Use indifference curve analysis to discuss why a manufacturer might be interested in a consumer's reaction to an equal rise in price for a normal good and a Giffen good.

The price of the company’s product was above the average total cost. Discuss whether in an imperfectly competitive market structure a firm’s aim would necessarily mean it would stop production if the price has to fall because of reduced demand.

Discuss why there might be exceptions to this normal response, distinguishing the income effect from the substitution effect. Consider the relevance of these exceptions to firms and the government.

Discuss whether the use of the concept of the margin is important for a firm in deciding its business objective.

Explain the relationship between marginal revenue and average revenue and their role in determining the output and profit of a profit maximising firm in a perfectly competitive market.

What costs ought a profit-maximising firm take into consideration when making decisions about price and output?

Explain the roles of marginal costs and average costs in determining the profits of a firm.

According to economic theory, what is the significance for a firm in a perfectly competitive labour market of a worker’s marginal product and average product?