Understanding Profit: Total Revenue, Total Costs, and Break-Even Point, Slides of Managerial Economics

Download Understanding Profit: Total Revenue, Total Costs, and Break-Even Point and more Slides Managerial Economics in PDF only on Docsity! Profit and the Firm Docsity.com What is profit? Profit = Total Revenue – Total Costs Price. Q – Total Costs Total Costs = Total Explicit Costs – Total Implicit costs Business Profit = TR – T. Explicit Costs • When economic profit is equal to zero, business profit is equal to “normal” profit. • When a firm is making less than a normal profit it may consider leaving the industry in long run while it may continue operation in the short run Docsity.com Or we can write: Profit = PQ - TFC - AVC.Q Break-even Q: Profit = Zero PQ -TFC -AVC.Q = 0, or Q(P-AVC) = TFC TFC Q b = ------------- P -AVC Docsity.com Break-Even Quantity TR = P.Q TC = TFC +AVC . Q TFC 0 Q $ TFC’ Qb Q’b Docsity.com Profit: The Case of Increasing Marginal Cost Profit = P.Q - TC (Q) o Q $ TR TC MC MR Docsity.com