As we’ve seen, Conrad wants to increase the production of paper. In the previous chapter, we explored what this would cost. But ultimately, the key question is: is it profitable? To answer this, we must first define profitability. There are two central concepts: operating profits (OP) and profit. In the short run, the relevant measure is operating profits (OP). In the long run, the firm must also generate a positive profit—or at the very least, avoid a negative one. We’ll now see that the firm is at its most profitable when production is at a level where marginal cost (MC) equals price (remember how I said marginal cost (MC) is the most important one?). But being most profitable doesn’t necessarily mean the firm is actually profitable. We’ll look at the thresholds a firm needs to meet to survive, both in the short run and in the long run. Finally, we’ll examine the firm’s demand for labour. Production requires workers, and changes in prices and wages affect both how much a profit-maximising firm should produce and how many people it should employ. By looking at the relationship between a firm’s demand for labour and its supply of goods, we get a more complete picture of how the firm operates.