Multiple Choice
If both a firm's revenue and cost remain constant over time, what will happen to its profit?
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10. The Costs of Production
Revenue, Cost, and Profit
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To calculate profit, producers subtract their total production cost from their:
A
average cost
B
variable cost
C
total revenue
D
marginal revenue
Verified step by step guidance1
Understand the definition of profit in microeconomics: Profit is the difference between total revenue and total cost.
Recall that total revenue (TR) is the total amount of money a producer receives from selling their goods or services, calculated as \(TR = P \times Q\), where \(P\) is price and \(Q\) is quantity sold.
Recognize that total cost (TC) includes all costs of production, both fixed and variable, incurred to produce the quantity \(Q\).
Note that average cost and variable cost are components or measures of cost, but profit calculation requires total revenue minus total cost, not just costs alone.
Therefore, to calculate profit, use the formula: \(\text{Profit} = \text{Total Revenue} - \text{Total Cost}\).
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