For the level of output, Q, firm profit is the same whether measured by TR - TC or (AR - AVC) * Q.

Name: For the level of output, Q, firm profit is the same whether measured by TR - TC or (AR - AVC) * Q.
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Question

Quizplus · Accepted Answer

Firm profit is correctly measured by TR - TC (Total Revenue minus Total Cost), not by (AR - AVC) * Q. The latter formula calculates the contribution margin per unit multiplied by quantity, which doesn't account for fixed costs, thus not accurately representing total profit.

For the Level of Output, Q, Firm Profit Is the Same