When a profit-maximizing firm is earning profits, those profits can be identified by
A)P × Q.
B)(MC - AVC) × Q.
C)(P - ATC) × Q.
D)(P - AVC) × Q.

Question

Quizplus · Accepted Answer

Profits for a firm can be calculated as the difference between total revenue and total cost. Therefore, option C, which calculates profits as (P - ATC) × Q, is the most accurate answer as it takes into account both the price and the average total cost of producing the goods. Option A (P × Q) only calculates the total revenue, while option B ((MC - AVC) × Q) only calculates the difference between the marginal cost and the average variable cost. Option D ((P - AVC) × Q) only takes into account the price and the average variable cost, but not the average fixed cost.

When a Profit-Maximizing Firm Is Earning Profits, Those Profits Can