Revenue, Profit, and Profit Maximization Micro Unit III: The Theory of the Firm

Revenue We’ve discussed costs, so lets talk revenue Revenue – income a firm receives from selling a product DON’T confuse revenue with profit!!! Profit = revenue – cost Remember, the goal of a firm is to MAXIMIZE PROFIT

Three Measures of Revenue

Do Part A, Activity 3-5

Three Measures of Profit

Do Activity 3-5, Part B

Rules for Profit Maximization Produce the output where MR = MC. The optimal price is found on the demand curve at the optimal output. Shut down (produce no output) if, at the optimal output, total revenue (TR) < total variable cost (TVC).

Do Activity 3-5, Parts C and D