Question

in pure competition, to calculate economic profit, we first calculate the difference between product _______ or ________ revenue and average total cost and then multiply it by output

Answer 1

In pure competition, economic profit is calculated by subtracting average total cost from total revenue or price times quantity and then multiplying the result by total output. For example, if total revenue at 40 units is $640 and total cost is $580, the economic profit is $60.

Step-by-step explanation:

To calculate economic profit in pure competition, a firm must first determine the difference between total revenue or price times quantity and average total cost. This difference is then multiplied by the firm's total output. For instance, from Table 10.1, if a firm has chosen to produce and sell 40 units of a product priced at $16 per unit, this firm would have total revenues of $640. The average total cost, represented as a light shaded rectangle in Figure 10.3, may be $14.50 per unit, resulting in total costs of $580. Hence, the economic profit can be calculated by taking the total revenue ($640) minus the total costs ($580), which equals $60. This profit is visually represented as the shaded area above the average cost curve.