Lesson 3.3.4

3.3.4 Normal profits, supernormal profits and losses Quiz: Pearson Edexcel Economics A, Unit 3

20 questions

Written by Revision Ninja · Last reviewed 11 October 2026

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Lesson 3.3.4, Normal profits, supernormal profits and losses: 20 multiple choice questions for the Pearson Edexcel Economics A (9EC0), Unit 3: Theme 3: Business behaviour and the labour market, written with Revision Ninja.

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The 20 questions

  1. Normal profit is best defined as:

    • Profit earned above the opportunity cost of the entrepreneur's resources
    • Total revenue with no costs deducted from it at all
    • The minimum reward that keeps the entrepreneur in the industry, where total revenue covers all costs including opportunity cost
    • Total revenue minus fixed costs only, ignoring variable costs

  2. Supernormal profit is:

    • Revenue that is less than total cost in every period of trading
    • Profit below normal profit, where the firm earns less than its opportunity cost
    • Profit exactly equal to zero after all costs have been counted
    • Profit above normal profit, where total revenue exceeds total cost including opportunity cost

  3. Which condition gives profit maximisation?

    • Total revenue equals total fixed cost of the firm in the period
    • Marginal cost equals marginal revenue, with MC cutting MR from below
    • Average revenue equals average cost at the chosen output level
    • Price equals marginal cost, which is the efficiency condition only

  4. In the short run, when should a firm shut down?

    • When price falls below average total cost, even if it covers variable costs
    • When price falls below average variable cost, so it cannot cover its variable costs
    • When average fixed cost falls to zero as output rises
    • When marginal cost rises above the price the firm can charge

  5. In the long run, when should a firm exit the market?

    • When price falls below average total cost, so it cannot cover all its costs
    • When average fixed cost is above the price that is charged
    • When price falls below average variable cost in the long run
    • When marginal cost falls below the price the firm can charge

  6. A firm's total revenue is £5,000 and total cost including normal profit is £4,200. What is its supernormal profit?

    • £4,200
    • £9,200
    • £5,000
    • £800

  7. Price is £12, output is 500 units and average total cost is £10. What is total profit?

    • £500
    • £5,000
    • £6,000
    • £1,000

  8. At Q = 200, marginal revenue and marginal cost are both £8. Average total cost is £7. What is total profit?

    • £1,600
    • £200
    • £0
    • £8

  9. A firm makes a loss but its price covers its variable costs. What is the sensible short-run decision?

    • Increase fixed costs to recover losses in the next period
    • Raise price above average total cost, which is always impossible
    • Keep producing, since it contributes towards fixed costs that are paid anyway
    • Close immediately, because any loss means the firm must shut down

  10. Why does supernormal profit attract new firms into an industry?

    • It forces existing firms to close their doors permanently
    • It reduces demand for the product as consumers switch to other goods
    • It turns the industry into a monopoly by attracting only one new firm
    • It signals higher returns than elsewhere, so entrants come in and competition erodes the profit

  11. In the long run in perfect competition, firms earn:

    • Losses in every period, because price is always too low
    • Supernormal profit only, due to the efficiency of the market
    • Normal profit only
    • Zero revenue, since the market price is set at zero

  12. A firm's price is £4 and its average variable cost is £5. What is the short-run decision?

    • Keep producing only if its fixed costs fall to zero
    • Shut down, because it cannot cover its variable costs
    • Expand output to spread its variable costs over more units
    • Keep producing, because price is above average variable cost

  13. What is the economic difference between normal and supernormal profit?

    • Normal profit is larger than supernormal profit in every case
    • Supernormal profit is a tax levied on normal profit by government
    • Normal profit is already counted as a cost (opportunity cost), while supernormal profit is the surplus above it
    • Both are measured only as accounting profit with no opportunity cost

  14. Profit is maximised where a firm produces the output at which:

    • Average cost is at its lowest level for the firm
    • Additional revenue from the last unit equals its additional cost
    • Total revenue is at its highest level for the firm
    • Price is at its highest level in the market

  15. Why can a monopolist's supernormal profit persist in the long run?

    • High barriers to entry prevent new firms from competing away the supernormal profit
    • Demand for its product is perfectly elastic at the market price
    • Supernormal profit is illegal in all markets under UK law
    • Marginal revenue is always above marginal cost for the monopolist

  16. A firm breaks even where total revenue is £8,000 and it sells 1,000 units. What is the price per unit?

    • £80
    • £16
    • £4
    • £8

  17. A firm sets MR = MC at output 400, with price £15 and average total cost £11. What is its total supernormal profit?

    • £4,400
    • £6,000
    • £1,600
    • £400

  18. Evaluate the claim: 'A firm making losses should always exit the market immediately.'

    • Yes, a loss-making firm should always exit immediately in every case
    • Not necessarily: in the short run it may keep producing if price covers AVC, but in the long run it exits if losses persist
    • Yes, because losses are illegal under all forms of business law
    • No, losses are never a problem for any firm in any market

  19. Why does entry continue until profit is normal in perfect competition, but not in monopoly?

    • Perfect competition forbids firms from making any profit
    • Both markets have identical barriers to entry in practice
    • Free entry erodes profit in perfect competition, whereas barriers keep rivals out of a monopoly
    • Monopoly firms have no costs of production at all

  20. A perfectly competitive firm's short-run supply curve is its marginal cost curve above which point?

    • The minimum point of average variable cost
    • The minimum point of average total cost
    • A price of zero in the market
    • The level of average fixed cost

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