Profit, profit maximization and firm decisions

Learning objectives

Distinguish accounting profit from economic profit using explicit and implicit costs, and explain why normal profit means zero economic profit

Calculate total revenue, average revenue and marginal revenue from a table, and explain why marginal revenue equals price for a price-taking firm

Apply the profit-maximizing rule of producing where marginal revenue equals marginal cost, using either the MR = MC approach or the total revenue minus total cost approach

Calculate profit or loss as (price minus average total cost) multiplied by quantity and show it as an area on a cost-curve diagram

Apply the short-run shutdown rule: keep producing at a loss if price covers average variable cost, shut down if it does not, because fixed costs are sunk

Explain the long-run decision to enter a market when economic profit is positive and to exit when economic losses persist