Normal & supernormal profit

An entrepreneur, and sole owner, has £300 000 invested in a firm. The same investment would generate an annual rate of return of 35% if it was transferred to a different market.

Table 2 shows the firm’s annual total costs of production, not including the opportunity cost of the capital the entrepreneur has invested, and annual total revenue in the current market.

How much abnormal profit is the business making each year in its current market?

Figure 6 shows the average revenue (AR), marginal revenue (MR) and marginal cost (MC) curves of a train-operating firm for peak-time and off-peak passengers. It also shows the price (P₁) that all passengers currently pay.

The train-operating firm introduces price discrimination to maximise profits. What is the effect on consumer surplus?

All other things being equal, Table 7 shows how the number of workers employed by a profit-maximising firm affects its total output per hour and the price it is able to charge for the product produced.

The firm pays its workers £18 per hour. It does not have any other variable costs and its fixed costs are £3 per hour.

How many workers will the firm employ?

To what extent do the data support the view that Boeing has been more successful than Airbus since 2014? You must use the data in Extract B to support your assessment.

Using the data in Extract A (Figure 1), calculate the mean amount of profit that pharmaceutical companies would have made on a new drug in 2019, given that the average development cost was $2.6bn. Give your answer to the nearest million dollars.

A monopolistically competitive firm’s demand curve for good X has a price elasticity of demand of minus 1.0 throughout its entire range. All other things being equal, which one of the following is most likely to result in an increase in the firm’s profits?

Figure 7 shows the average and marginal revenue (AR and MR) curves and the average and marginal cost (AC and MC) curves for a firm. The firm is in equilibrium producing an output of Qe.

From the diagram it can be inferred that the

Table 5 contains data for a firm’s marginal cost of producing different outputs of shirts per day. The firm operates in a perfectly competitive market.

If the market price is £10 per shirt, at which one of the following outputs per day, A, B, C or D, will the firm maximise its profit?

Extract C (lines 10–11) states that ‘There is ample opportunity for new players to enter the sector.’

With the help of a diagram, explain how the lowering of barriers to entry in the banking market might lead to lower prices and a situation in which banks make normal profit.

Explain the role of profit in a market economy.

Evaluate the view that a firm making low profits must be inefficiently managed.

The diagram below shows a firm operating in perfect competition in the short run.

Which quantity, OE, OF, OG or OH, indicates the output where profits are maximised?

Extract B (lines 12–14) states that ‘The Universal Postal Service obligations require Royal Mail to deliver letters and parcels to all parts of the country six days a week’.

With the help of a monopoly diagram, explain how the Universal Postal Service obligations are likely to affect Royal Mail’s costs and profits.

The table below shows the output, average total cost and average revenue for a

At which one of the following levels of output will the firm maximise its profits?