Final answer:
Profits are determined by calculating the difference between total revenue and total cost at various output levels. Firms aim to produce at the quantity where this difference is maximized, leading to the highest profit margin.
Step-by-step explanation:
The question of how to calculate profit involves analyzing the firm's total revenue and total cost at different levels of output. A firm like the hypothetical raspberry farm must find the quantity of output where total revenue exceeds total cost by the largest amount to maximize profits. For example, with a total revenue of $640 at a quantity of 40, and total costs at $580, profits are $60.
This profit represents the shaded area above the average cost curve in related graphs. Such analysis is critical in determining the output level that yields the highest profit which, in this case, occurs at 75 packs with a total revenue and total cost that are equal, thus resulting in zero profit. In order to calculate economic profits, the price per unit needs to be above the average cost of production. For instance, at a quantity of 40 and a price of $16, being higher than the average cost of $14.50 per unit, the firm realizes economic profits.