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Total cost and total revenue at the raspberry farm
Total Cost
Fixed Cost
Variable Cost
Total Revenue
0 $62 $62 - $0 −$62
10 $90 $62 $28 $40 −$50
20 $110 $62 $48 $80 −$30
30 $126 $62 $64 $120 −$6
40 $144 $62 $82 $160 $16
50 $166 $62 $104 $200 $34
60 $192 $62 $130 $240 $48
70 $224 $62 $162 $280 $56
80 $264 $62 $202 $320 $56
90 $324 $62 $262 $360 $36
100 $404 $62 $342 $400 −$4

Based on its total revenue and total cost curves, a perfectly competitive firm like the raspberry farm can calculate the quantity of output that will provide the highest level of profit. At any given quantity, total revenue minus total cost will equal profit. One way to determine the most profitable quantity to produce is to see at what quantity total revenue exceeds total cost by the largest amount. On [link] , the vertical gap between total revenue and total cost represents either profit (if total revenues are greater that total costs at a certain quantity) or losses (if total costs are greater that total revenues at a certain quantity). In this example, total costs will exceed total revenues at output levels from 0 to 40, and so over this range of output, the firm will be making losses. At output levels from 50 to 80, total revenues exceed total costs, so the firm is earning profits. But then at an output of 90 or 100, total costs again exceed total revenues and the firm is making losses. Total profits appear in the final column of [link] . The highest total profits in the table, as in the figure that is based on the table values, occur at an output of 70–80, when profits will be $56.

A higher price would mean that total revenue would be higher for every quantity sold. A lower price would mean that total revenue would be lower for every quantity sold. What happens if the price drops low enough so that the total revenue line is completely below the total cost curve; that is, at every level of output, total costs are higher than total revenues? In this instance, the best the firm can do is to suffer losses. But a profit-maximizing firm will prefer the quantity of output where total revenues come closest to total costs and thus where the losses are smallest.

(Later we will see that sometimes it will make sense for the firm to shutdown, rather than stay in operation producing output.)

Comparing marginal revenue and marginal costs

Firms often do not have the necessary data they need to draw a complete total cost curve for all levels of production. They cannot be sure of what total costs would look like if they, say, doubled production or cut production in half, because they have not tried it. Instead, firms experiment. They produce a slightly greater or lower quantity and observe how profits are affected. In economic terms, this practical approach to maximizing profits means looking at how changes in production affect marginal revenue and marginal cost.

[link] presents the marginal revenue and marginal cost curves based on the total revenue and total cost in [link] . The marginal revenue    curve shows the additional revenue gained from selling one more unit. As mentioned before, a firm in perfect competition faces a perfectly elastic demand curve for its product—that is, the firm’s demand curve is a horizontal line drawn at the market price level. This also means that the firm’s marginal revenue curve is the same as the firm’s demand curve: Every time a consumer demands one more unit, the firm sells one more unit and revenue goes up by exactly the same amount equal to the market price. In this example, every time a pack of frozen raspberries is sold, the firm’s revenue increases by $4. [link] shows an example of this. This condition only holds for price taking firms in perfect competition where:

Questions & Answers

How can we analyze the effect on demand or supply if multiple factors are changing at the same time—say price rises and income falls? 
Gabriel Reply
what are the difference between Wants and Needs
Gabriel Reply
When the price is above the equilibrium, explain how market forces move the market price to equilibrium. Do the same when the price is below the equilibrium.
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Bherla Reply
To know if the country is growing or not through the country's GDP
to manage our resources
compare base years GDP and the current years GDP
To tell whether a country is growing there are many factors to be considered not necessarily only the GDP due to weaknesses of GDP approach
What is the law of demand
Yaw Reply
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all other things being equal, an increase in demand causes a decrease in supply and vice versa
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What is demand
jude Reply
Demand is the quantity of goods and services a consumer is willing and able to purchase at various prices over a given period of time.
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demand is the quantity and quality of goods and services a consumer is willingly and able to purchase at a particular price over a given period of time.
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If potatoes cost Jane $1 per kilogram and she has $5 that could possibly spend on potatoes or other items. If she feels that the first kilogram of potatoes is worth $1.50, the second kilogram is worth$1.14, the third is worth $1.05 and subsequent kilograms are worth $0.30, how many kilograms of potatoes will she purchase? What if she only had $2 to spend?
Susan Reply
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DAVY Reply
QI: (A) Asume the following cost data are for a purely competitive producer: At a product price Of $56. will this firm produce in the short run? Why Why not? If it is preferable to produce, what will be the profit-maximizing Or loss-minimizing Output? Explain. What economic profit or loss will the
Falak Reply
what is money
DAVY Reply
money is any asset that is generally acceptable for the exchange of goods and for the settlement of debts
money is a generally acceptable asset used for the settlement of debt and exchange of goods and services,its also flexible
what is economic
Stephen Reply
economics is the study of ways in which people use resources to satisfy their wants
what is Price mechanism
Dhany Reply
what is Economics
The study of resource allocation,distribution and consumption.
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Uday Reply
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examine the wealth and welfare definitions of economics
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What do we mean by Asian tigers
Aeesha Reply
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What is Average revenue
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Please, average revenue is an amount of money you gained after deducted your total expenditure from your total income.
what's a demand
Edward Reply
it is the quantity of commodities that consumers are willing and able to purchase at particular prices and at a given time
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demand depends upon 2 things 1wish to buy 2 have purchasing power of that deserving commodity except any from both can't be said demand.
Demand is a various quantity of a commodities that a consumer is willing and able to buy at a particular price within a given period of time. All other things been equal.
State the law of demand
The desire to get something is called demand.

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Source:  OpenStax, Principles of economics. OpenStax CNX. Sep 19, 2014 Download for free at http://legacy.cnx.org/content/col11613/1.11
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