Profit

How do you calculate profit?

Total Revenue- Total cost

What type of cost is included in total cost?

The opportunity cost

so… Profit= total revenue- total cost (including opportunity cost)

Running his company, Guy was making £2000 profit per month. But after receiving a job offer at Credit Suisse for £3000 per month, Guy decided to close down his company - why?

Because if we include his opportunity cost, Guy was actually making −£1000 profit

What if a business is making less than normal profit?

It will leave the market, because it’s no longer covering its opportunity cost

when a firm is making normal profit:

they will stay in the market, because their opportunity cost is just covered

when TR=TC, a firm is making:

normal profit

And finally, when TR is greater than TC, a firm is making:

an abnormal/ supernormal profit- it is making extra profit above its opportunity cost

What is the costs and revenue diagram?

How do you find the profit max price?

Where MR=MC and then slide up to where the point is on AR

How do you work out Profit on the graph?

How do you show supernormal profits?

What would a fall in AR and MR look like on the graph?

How is profit shown on the diagram once revenue falls/

How can you show an increase in variable costs on the diagram?

• Price increased and quantity decreased

How can you show a reduction in variable costs on the diagram?