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Questions and Answers
What does Total Revenue equal?
What does Total Revenue equal?
Price x quantity sold
What does Profit equal?
What does Profit equal?
Total Revenue - Total cost
Define Marginal Revenue.
Define Marginal Revenue.
Change in total revenue/change in quantity
What is the Optimal output rule?
What is the Optimal output rule?
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If TR > TC, then the firm is profitable.
If TR > TC, then the firm is profitable.
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If TR = TC, then the firm breaks even.
If TR = TC, then the firm breaks even.
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What does TR stand for?
What does TR stand for?
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Study Notes
Total Revenue
- Total Revenue is calculated by multiplying price by quantity sold.
Profit
- Profit is determined by subtracting total cost from total revenue.
Marginal Revenue
- Marginal Revenue reflects the change in total revenue when quantity sold changes; calculated as the change in total revenue divided by the change in quantity.
Optimal Output Rule
- The optimal output rule states that profit is maximized when the quantity produced is such that the marginal revenue from the last unit equals its marginal cost.
Profitability Indicators
- When Total Revenue (TR) exceeds Total Cost (TC), the firm is profitable.
- When Total Revenue equals Total Cost, the firm breaks even.
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