Economic Profit

This text discusses the relationship between total revenue, total cost, and economic profit for a firm in the short run. The text shows how economic profit is maximized at a certain level of output, and how this level of output is determined by the intersection of the total revenue and total cost curves.

Questions

• What is the difference between total revenue and total cost?
• What is economic profit?
• How is economic profit maximized?
• What factors determine the level of output at which economic profit is maximized?

Answers

• Total revenue is the total amount of money a firm receives from selling its output. Total cost is the total amount of money a firm spends on producing its output. Economic profit is the difference between total revenue and total cost.
• Economic profit is maximized when total revenue is equal to total cost. This occurs at the point where the total revenue curve and the total cost curve intersect.
• The level of output at which economic profit is maximized is determined by the intersection of the total revenue curve and the total cost curve. This level of output is also the level of output where marginal revenue is equal to marginal cost.