Multiple Choice
Which method do companies typically use to determine the most profitable way to operate?
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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
total revenue
B
average cost
C
marginal revenue
D
variable cost
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 \(Q\).
Set up the profit formula as \(\text{Profit} = TR - TC\).
Identify that among the given options, total revenue is the correct term to subtract total production cost from in order to calculate profit.
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