Measurement of Profit

Measurement of Profit:

The firm’s profit might be stated as the difference among its total revenue and its total cost that is,

Profit = Total Revenue – Total Cost

The goal of any firm is to maximize its profit that is to maximize the positive difference among the Total Revenue (i.e., TR) and Total Cost (i.e., TC). At that point the producer will be in balance.

Table: Maximizing Profits

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From the table above it can be understood that the firm will earn maximum gain of $ 85 whenever it generates 6 units of output. Therefore the firm will be in equilibrium by generating 6 units of output.

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Figure: Maximization of Profit

Its gain is the maximum at OM level of yield where the distance among the TR curve and the TC curve is the maximum. Whenever the firm generates OL level of output, and OH level of output, net revenue merely equals total cost (i.e., TR = TC). At such points, the firm is making neither profits nor losses. Therefore the points S and Q are termed Break-even points.


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