Cost Revenue And Profit Economics

Where c is the total cost.

Cost revenue and profit economics. Profit total revenue total cost. It means total revenue minus explicit costs the difference between dollars brought in and dollars paid out. To see how a firm goes about maximizing profit we must consider fully how to measure its total revenue and its total cost. π r c 1 2 q 40 000.

Note we are measuring economic cost not accounting cost. Here π is used as the symbol for profit. Total revenue is the easy part. The difference is important because even though a business pays income taxes based on its accounting.

Economic profit is total revenue minus total cost including both explicit and implicit costs. Since profit is the difference between revenue and cost the profit functions the revenue function minus the cost function. This occurs when the difference between tr tc is the greatest. In general when the context involves such things as demand supply and cost revenue curves any mention of the word profit would refer to economic profit.

Accounting profit is a cash concept. In classical economics it is assumed that firms will seek to maximise their profits. In economics whenever the term profit is encountered its context should determine whether it refers to accounting profit or economic profit. Marginal revenue mr the extra revenue gained from selling an extra unit of a good.

In symbols π r c p q f v q.