A firm’s total revenue is equal to the price of the product times the number of products sold. For example, if you own a company and you sell 100 magazines at $2 per magazine, then your total revenue is 100 x $2 = $200.
Total costs equal the firm’s total variable costs (labor, supplies, raw materials, etc.) plus the firm’s total fixed costs (machinery, office space, etc.). For example, if your firm’s total variable costs equal $100, and your total fixed costs equal $60, then your total costs equal $100 + $60 = $160.
Total profit is total revenue minus total costs. In the above example, your firm’s profits equal $200 – $160 = $40.
We will use the following abbreviations:
|Total Revenue = TR
Total Cost = TC
Total Profit = TP
The Price of the Product = P
The Quantity of the Product Sold = Q
We will use the following equations to calculate TR and TP:
|TR = P x Q
TP = TR – TCIn the example at the top of this page:
TR = P x Q = 100 x $2 = $200
TC = $160
Profit = TR – TC = $200 – $160 = $40.