Multiple Choice
To calculate profit, producers subtract their total production cost from their:
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10. The Costs of Production
Revenue, Cost, and Profit
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The profit that a factor earns is the difference between:
A
the revenue generated by the factor and its opportunity cost
B
the marginal cost and the average cost
C
the total cost and the fixed cost
D
the price of the product and the quantity produced
Verified step by step guidance1
Understand that in microeconomics, a 'factor' refers to an input used in production, such as labor or capital.
Recall that the profit earned by a factor is the difference between what the factor generates in revenue and what it costs to employ that factor.
Identify that the revenue generated by the factor is the income it brings in, often called the factor's marginal revenue product.
Recognize that the opportunity cost of the factor is the value of the best alternative use of that factor, essentially what you give up by employing it in the current use.
Therefore, the profit earned by the factor is calculated as the revenue generated by the factor minus its opportunity cost, which aligns with the correct answer.
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