Question

What is the difference between firm's total revenue and total cost?

• A. Marginal cost
• B. Average variable cost
• C. Minimum average cost
• D. Profit

Hint:

Profit is the difference between total revenue and total cost. If total revenue exceeds total cost, the firm earns a profit.

Answer 1

The Correct Option is D

Step 1: Understanding total revenue and total cost.
The total revenue (TR) of a firm is the total income it earns from the sale of goods or services. Total cost (TC) is the total expenditure incurred in the production process. The difference between total revenue and total cost represents the firm's profit (or loss) from its business operations.

Step 2: Analyzing the options.
(A) Marginal cost: This is incorrect. Marginal cost refers to the additional cost of producing one more unit and is not the difference between total revenue and total cost.
(B) Average variable cost: This is incorrect. Average variable cost is the variable cost per unit of output, not the difference between total revenue and total cost.
(C) Minimum average cost: This is incorrect. The minimum average cost refers to the lowest point on the average cost curve, not the difference between total revenue and total cost.
(D) Profit: Correct. The difference between total revenue and total cost is the firm's profit.

Step 3: Conclusion.
The difference between total revenue and total cost is the firm's profit. Therefore, the correct answer is (D) Profit.