Defining Profit Lesson 4.52, 4.53. Understanding Profit (52) Profit = Total Revenue – Total Costs Explicit vs Implicit Costs – Explicit costs require.

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Presentation transcript:

Defining Profit Lesson 4.52, 4.53

Understanding Profit (52) Profit = Total Revenue – Total Costs Explicit vs Implicit Costs – Explicit costs require payment of money – Implicit Costs are benefits or value lost Opportunity Costs Accounting Profit vs Economic Profit – Accounting Profit = Total Revenue – (Explicit Costs + Depreciation) – Economic Profit = Total Revenue – (Explicit + Implicit Costs) Normal Profit – When economic profit = 0, use of resources is maximized

Table 52.1 Opportunity Cost of an Additional Year of School Ray and Anderson: Krugman’s Economics for AP, First Edition Copyright © 2011 by Worth Publishers

Profit Maximization (53) Maximizing Profit – Using Marginal Analysis to Choose Profit- Maximizing Quantity of Output Marginal Revenue – MR= Change in total revenue by one additional unit of output Maximum Profit – When Marginal Revenue = Marginal Costs Marginal Cost Curve Marginal Revenue Curve When is Production Profitable?

Figure 53.1 The Firm’s Profit-Maximizing Quantity of Output Ray and Anderson: Krugman’s Economics for AP, First Edition Copyright © 2011 by Worth Publishers