Final answer:
The correct formula for calculating profit is Profit = (P - ATC) * Q, where P is price, ATC is average total cost, and Q is quantity sold.
Step-by-step explanation:
Calculating Profit in Business
To calculate profit, you need to use the formula Profit = Total Revenue (TR) - Total Cost (TC). Total Revenue (TR) is calculated by the price (P) multiplied by the quantity (Q) of goods sold, expressed as TR = P * Q. Total Cost (TC) can be calculated by the average total cost (ATC) multiplied by the quantity (Q), which is TC = ATC * Q. Therefore, the correct formula for calculating profit is Profit = (P - ATC) * Q. This is because profit is the amount by which total revenue exceeds total cost at a certain level of output.
When the price is greater than the average total cost (Price > ATC), the firm earns an economic profit. When the price equals the average total cost (Price = ATC), the firm earns zero economic profit. However, when the price is less than the average total cost (Price < ATC), the firm incurs a loss.
Thus, option 2 is the correct formula: Profit = (P - ATC) * Q.