3.2: Profit (copy)

Total Revenue

The total income generated from the sale of goods or services, calculated as Price X Quantity.

Profit

The financial gain obtained when Total Revenue exceeds Total Cost.

Explicit Costs

Out-of-pocket costs that a firm incurs for using the resources of others, such as rent, wages, materials, and electricity bills.

Accounting Profit

The profit calculated by subtracting only explicit costs from total revenue.

Implicit Costs

The opportunity costs associated with using a firm's own resources, including forgone wages, forgone rent, and time.

Economic Profit

The profit calculated by subtracting both explicit and implicit costs from total revenue.

Short-run Profit Maximization

The objective of businesses to maximize profit by determining the optimal output level.

Profit Maximizing Rule

The principle that a firm should continue producing until Marginal Revenue equals Marginal Cost (MR = MC).

Shut Down Rule

A guideline stating that a firm should continue to produce as long as the price is above Average Variable Cost (AVC); if the price falls below AVC, the firm should shut down to minimize losses.

Barriers To Entry

Factors that prevent new firms from entering a market, affecting competition and profitability.

Normal Profit

The level of profit in a competitive market where firms break even, making no economic profit.