Profit or loss of a firm
Explanation of Solution
The profit equation for a firm is −
Here,
TR= Total Revenue received through sales of output
TC= Total Cost met by the firm
TC comprises of Explicit Costs and Implicit Costs.
Explicit costs are the direct payments made during production process such as wages, rent and raw materials.
Implicit cost means any cost that has already incurred but not compulsorily shown or reported as a different expense. It indicates an
When TR>TC, the firm earns profit and when TC> TR, it faces loss.
Introduction:
Profit is the gap at the total revenue income received through sales and total cost met by a firm in to produce certain level of output. Surplus of total revenue received by the firm over total cost incurred by same the firm indicates profit. On the contrary, Excess of total cost incurred by the firm over total revenue received by the same firm indicates loss.
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Chapter 8 Solutions
Principles of Economics (Second Edition)
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