Costs, firms & profit

Revenue

Money a firm receives from selling goods/services.

Total Revenue (TR)

Price × Quantity

Total Cost (TC)

All costs of production.

Profit

Total Revenue − Total Cost

Fixed Cost

Cost that doesn't change with quantity produced in the short run. Example: rent.

Variable Cost

Cost that changes as production changes.

Average Total Cost (ATC)

Total Cost ÷ Quantity

Marginal Cost (MC)

Cost of producing one additional unit.

Marginal Revenue (MR)

Revenue generated by selling one additional unit.

Profit-Maximizing Rule

Firms generally maximize profit where MR = MC.

Economies of Scale

Average costs decrease as the scale of production increases.

Diseconomies of Scale

Average costs increase as a firm becomes very large.