Letters are used to represent the terms used to answer this question: price (P), quantity of output (Q), total cost (TC)and average total cost (ATC).Which of the following equations is equal to a firm's profit?
A)P - ATC
B)(P × Q)- TC
C)(P × Q)- (P × ATC)
D)P - TC

Question

Quizplus · Accepted Answer

Profit is equal to total revenue (which is equal to price times quantity, or P × Q) minus total cost (TC). Therefore, the equation that represents a firm's profit is (P × Q)- TC, which is option B. Option A represents the firm's per unit profit (revenue per unit minus cost per unit), while option C represents the firm's total revenue minus total variable cost. Option D represents the difference between the price and the total cost, but does not take into account the quantity of output produced, so it is not the equation for profit.

Letters Are Used to Represent the Terms Used to Answer