III - ACSAD Economics Report

1. WHAT IS REVENUE?
Income side of a firm.
Turn over
Income that company receives.
PROFIT MAXIMIZATION
 Process determine the price and output
level returns the greatest profit.

2. TOTAL REVENUE – TOTAL COST APPROACH
TR = Price times Unit Sold
TR = P x Q
TR – TC = Profit
OPERATE OR SHUTDOWN RULE:
In Short run : If TR > VC = Operate
TR < VC = Shutdown

3. IN LONG RUN:
 All cost are Variable
• TC = VC
OPERATE OR SHUTDOWN RULE:
 TR > TC = Produce More
 TR < TC = Stop Production
 TR = TC = Maintain Production

4. PROFIT MAXIMIZATION

5. MARGINAL REVENUE – MARGINAL COST
APPROACH
 Marginal Revenue – Additional Income.
 Marginal Cost – Additional Cost.
FIRM CAN DETERMINE PROFIT
 If MR > MC = Increased Production
MR < MC = Do not Increase

6. MOST PROFITABLE OUTPUT OF AT WHICH:
 MR = MC
 Profit Maximization is Attained
 It is in the point where
• P = MC