So, the firm will designate the medium-sized machine to produce q2 and the small-sized machine to produce q1. The firm makes these decisions to reduce production costs. This is why the long-run average cost function is an envelope of all short-run average cost functions. In this example I only used 3 different sizes of machines, but in real life there would be lots of different sized machines, all with different average minimum costs. (Perloff, 2014). Graph 10 shows the balance between marginal costs, average costs and production price. Point E shows the normal profit of a company. For a business to survive in a competitive market it must produce this normal profit. Normal profit is sometimes called economic profit. To produce a supernormal profit a firm must increase the price level of production so that the intercept between the price level and the marginal cost curve is higher. Supernormal profit is the extra profit made in addition to the normal profit. Profit cannot be maximized if the production price is lower than the minimum of the short-run average cost curve because below this curve the costs incurred by a firm to produce a product will be greater than the firm sells the product. product.