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It can be calculated as:

profit = total revenue total cost = ( 90 ) ( $5.00 ) ( 90 ) ( $3.50 ) = $135

Or, it can be calculated as:

profit = (price average cost) × quantity = ($5.00 $3.50) × 90 = $135

Now consider [link] (b), where the price has fallen to $3.00 for a pack of frozen raspberries. Again, the perfectly competitive firm will choose the level of output where Price = MR = MC, but in this case, the quantity produced will be 70. At this price and output level, where the marginal cost curve is crossing the average cost curve, the price received by the firm is exactly equal to its average cost of production.

The farm’s total revenue at this price will be shown by the large shaded rectangle from the origin over to a quantity of 70 packs (the base) up to point E (the height), over to the price of $3, and back to the origin. The average cost of producing 70 packs is shown by point C’. Total costs will be the quantity of 70 times the average cost of $3.00, which is shown by the area of the rectangle from the origin to a quantity of 70, up to point E, over to the vertical axis and down to the origin. It should be clear from that the rectangles for total revenue and total cost are the same. Thus, the firm is making zero profit. The calculations are as follows:

profit = total revenue total cost = (70)($3.00) (70)($3.00) = $0

Or, it can be calculated as:

profit = (price average cost) × quantity = ($3.00 $3.00) × 70 = $0

In [link] (c), the market price has fallen still further to $2.00 for a pack of frozen raspberries. At this price, marginal revenue intersects marginal cost at a quantity of 50. The farm’s total revenue at this price will be shown by the large shaded rectangle from the origin over to a quantity of 50 packs (the base) up to point E” (the height), over to the price of $2, and back to the origin. The average cost of producing 50 packs is shown by point C” or about $3.30. Total costs will be the quantity of 50 times the average cost of $3.30, which is shown by the area of the rectangle from the origin to a quantity of 50, up to point C”, over to the vertical axis and down to the origin. It should be clear from examining the two rectangles that total revenue is less than total cost. Thus, the firm is losing money and the loss (or negative profit) will be the rose-shaded rectangle.

The calculations are:

profit = (total revenue  total cost) = (50)($2.00) (50)($3.30) = –$77.50

Or:

profit = (price average cost) × quantity = ($1.75 $3.30) × 50 = –$77.50

If the market price received by a perfectly competitive firm leads it to produce at a quantity where the price is greater than average cost, the firm will earn profits. If the price received by the firm causes it to produce at a quantity where price equals average cost, which occurs at the minimum point of the AC curve, then the firm earns zero profits. Finally, if the price received by the firm leads it to produce at a quantity where the price is less than average cost, the firm will earn losses. This is summarized in [link] .

If... Then...
Price>ATC Firm earns an economic profit
Price = ATC Firm earns zero economic profit
Price<ATC Firm earns a loss

Questions & Answers

juxtapose indisputable fact of scarcity
Adebayo Reply
what is opportunity cost?
Humphrey
Opportunity cost is the want sacrificed to satisfy another want.
Joseph
opportunity cost is a forgone alternative, example if a consumer wants to buy a book Nd a pen but he does not have the money for both then he drops the pen Nd buys the book..... so the pen that he dropped Is the opportunity cost
chimdindu
a.o.a..
Imran
opportunity cost is the alternative forgone or goods that is left on satisfied in order to satify another want
richmond
it is also the satisfaction of a want with the expense of another want
richmond
what is surplus value theory
Ayunku
what does the law demand and supply states
Humphrey
hello
Nuhu
the law of demand state that at a higher price less is demanded and at low price more is demanded
Nuhu
the law supply state that at a higher price more is demanded and at a low price less is demanded
Nuhu
what is the equilibrium quantity
Zinna Reply
differentiate between equilibrium and equilibrium point
Adebayo
Leo Robinson's definition
Adejimi Reply
how is equilibrium defined in financial markets?
Babakura Reply
the concept of it
DALOM
Country A has export sales 20 billion, government purchases 1000billion, business investment is 50 billion, imports are 40billion, and consumption spending is 2000billin. What is the dollar value of GDP ?
Habtamu Reply
what is determination of national income?
Waqar Reply
economic growth
Rukaiya
stock of capital
Rukaiya
we're RBI keep money with them
Anil
Y =C+l
Favour
evaluate the success affirmative action as one of south Africa's redress method
Tebatso Reply
what is market equilibrium
explorer Reply
it is a situation in which the supply of an item is exactly equal to it dd .
Ssmith
inder wat condition shld a firm stop production in both short n lungrun ?
Ssmith
what is 2nd degree price discrimination?
Ssmith
what is quantity
Tettey
what is quantity2
Deji Reply
An indefinite amount of something.
explorer
what is the opportunity cost of producing 20 loaves of bread?
Zinna
what is demand
Kaman Reply
in ordinary sense demand means desire
Khalid
demand in economics means both willingness as well as the ability to purchase a commodity by paying a price an also its actuall purchase
Khalid
what is absolute advantage
Khalid
demand refers to the various quantity of goods and services that consumers are willing and able to purchase at a particular period of time all other things been equal
Dela
The amount of a good or service that consumers are willing to buy at a particular price.
explorer
what is cost pull inflation?
oru
what is utility
oru
what is cost pull inflation?
oru
demand is economic principle referring to a consumer's desire and willingness to pay a price for a specific or service..
Babakura
utility is the among of certisfaction driving from using a comundity
Anas
pull cost of inflation hight population unemployment to some of The country members poor government system
Anas
what is a buffer scheme
Lukong
state the second law of demand and supply
Ahmadou Reply
state the law of diminishing marginal utility
Ahmadou
dt know WATS the answer
Rukundo
mention and explain two Bank I financial institutions and two non baking financial institutions
Onah Reply
wat is demand pull inflation
Tony Reply
Demand-pull inflation is asserted to arise when aggregate demandin an economy outpaces aggregate supply. It involvesinflation rising as real gross domestic product rises and unemployment falls, as the economy moves along the Phillips curve.
kevin
Perfectly elastic demand
Abubakar Reply
this is a form of demand where goods are demanded at a constant price
Rukundo
what inelastic demanding
Koire
demand of any good demanded more after a certain period. if a commodity prices may high and scarcity of that resources.
Anil
cannot demand more
Anil
what is cross-elasticity of demand
Miles Reply
cross elasticity of demand is an economic concept that measures the responsiveness in the quantity demand of one good when a change in price takes place in other good
Mallekha
this is responsiveness quantity demanded keeping other factors constant
Rukundo

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Source:  OpenStax, Principles of economics. OpenStax CNX. Sep 19, 2014 Download for free at http://legacy.cnx.org/content/col11613/1.11
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