Total Revenue Minus Total Cost Is At A Maximum

At the output level q 0 total revenue equals tr 0 total cost equals tc 0 and total profit is the difference between them.

Total revenue minus total cost is at a maximum. Total profit equals total revenue minus total cost or. Revenue is the product of price times the number of units sold. Total profit is maximized at the output level where the difference between total revenue and total cost is greatest. To calculate maximum revenue determine the revenue function and then find its maximum value.

A profit function is a mathematical relationship between a firm s total profit and output. Write a formula where p equals price and q equals demand in the number of units. In a perfectly competitive market the forces of entry would erode this profit in the long run. Your total profit equals total revenue minus total cost and is represented by the double headed arrow labeled ð.

Total cost will be q1 multiplied by the average cost of producing q1 which is shown by point s on the average cost curve to be p2. The monopolist determines the output level at which total profit is maximized or the difference between total revenue and total cost is greatest. At q 0 your total revenue equals tr 0 and your total cost equals tc 0. In the illustration this occurs at the output level q 0.

Producer surplus plus consumer surplus represents the total. The total revenue that a producer receives from selling their goods minus the total cost of production equals the producer surplus. In the illustration this corresponds to q 0 of output. It equals total revenue minus total costs and it is maximum when the firm s marginal revenue equals its marginal cost.