Revenue and profit
Revenue
| Revenue | Meaning |
|---|---|
| total revenue | $TR = P \times Q$ |
| average revenue | revenue per unit = the price |
| marginal revenue | $MR = \Delta TR / \Delta Q$ |
Practice
A firm sells 30 units at 5 each. What is total revenue (in dollars)?
TR = price × quantity = 5 × 30 = 150.
Profit
- Profit = total revenue − total cost (cost includes the owner's opportunity cost).
- normal profit — just enough to stay in the industry (counts as a cost).
- supernormal profit — above normal.
- subnormal profit — below normal (the firm may leave long-run).
- A firm maximises profit where MR = MC.
Practice
Normal profit is:
Normal profit covers opportunity cost and counts as a cost; supernormal profit is above it.
Practice
A firm maximises profit at the output where:
Profit is greatest where MR = MC.
You've got it
Key idea
- TR = P × Q; average revenue = the price; MR = ΔTR/ΔQ
- normal profit keeps the firm in; supernormal is above it
- profit is maximised where MR = MC