Revenue and Profit

Question 1

Explain and Calculate Total revenue

Answer 1

Total Revenue:
□ This is the revenue received from the sale of a given level of output
□ Calculation:
Total Revenue = Price x Quantity Sold

Question 2

Explain and calculate average revenue

Answer 2

○ Average Revenue:
□ This is the Average Receipt per unit
□ Calculation:
® Average Revenue = Total Revenue/Quantity sold

Question 3

Explain and calculate marginal revenue

Answer 3

○ Marginal Revenue:
□ This is the extra revenue gained from selling one more unit
□ Calculation:
® The difference between Total Revenue at different levels of output

Question 4

Explain and calculate profit

Answer 4

○ Profit:
§ Calculation
® Total Revenue - Total Costs
Or
(AR-AC) x Q

Question 5

Explain and calculate loss

Answer 5

○ Loss:
§ When a firm fails to cover their total costs

Question 6

Explain accounting profit

Answer 6

○ Accounting Profit:
□ Calculation:
® Accounting Profit = Total Monetary Revenue - Total Costs

Question 7

Explain normal profit

Answer 7

○ Normal Profit:
□ The minimum reward required for entrepreneurs to keep supplying their enterprise
□ It covers the opportunity cost of investing into the firm
□ It occurs when: Total Revenue = Total Costs (TR=TC)

Question 8

Explain supernormal profit

Answer 8

○ Supernormal Profit:
□ The profit above normal profit
□ Exceeds the value of opportunity cost of investing funds into the firms
□ TR>TC