T3 Economic Profit

Question 1

What motivates any producer to participate in an exchange

Answer 1

Economic profit

Question 2

How is economic profit calculated

Answer 2

Economic profit or EP is determined by taking the total revenue earned by the firm and then subtracting their total cost.

Or to put into mathematical terms
EP equals TR minus TC

Question 3

How is total revenue (TR) calculated

Answer 3

Total revenue is calculated by multiplying the price of each unit by the quantity of goods sold

TR = P * Q

Question 4

How is average revenue calculated

Answer 4

Average revenue is calculated by dividing the total revenue by the quantity of goods sold. This tells us that the average revenue is equivalent to the price of each unit sold.
AR = TR/Q = (P*Q)/Q= P

Question 5

How was marginal revenue calculated. MR

Answer 5

Marginal revenue is equal to the revenue earned for each additional unit sold. This can be determined from the slope of the total revenue curve.
MR = T R / Q
With pyramids in front

Question 6

How is total cost calculated. TC

Answer 6

Total cost is determined by adding a firms explicit and implicit costs.
TC = EC + IC

Question 7

How is implicit cost calculated

Answer 7

Implicit costs are equivalent to opportunity costs.

Question 8

what is explicit costs

Answer 8

Covers cost such as wages renting or purchasing property and equipment and utilities