Revenue and Profit

• Average revenue is total revenue divided by quantity and is equivalent to the demand curve
• Marginal revenue is the extra revenue from selling one additional unit of output and falls with twice the slope of the average revenue curve
• Total revenue is equal to price times quantity sold and is an upside down U shape
• Total revenue is maximized at the point where marginal revenue is equal to zero
• Profit is calculated as total revenue minus total cost, including opportunity costs
• Normal profit is the minimum profit needed to keep a firm in business long term
• Supernormal profits are any profits made over and above normal profits and act as an incentive for suppliers and entrepreneurs

Revenue curves are used to show how revenue changes across different levels of output. The average revenue curve is equivalent to the demand curve and is a downward sloping curve. The marginal revenue curve is steeper than the average revenue curve and starts at the same point on the y-axis. Total revenue is equal to price times quantity sold and is an upside down U shape. Profit is calculated by subtracting total cost from total revenue, including opportunity costs. Normal profit is the minimum amount needed to keep a business running, while supernormal profits are any profits made over and above normal profits. Profit acts as an incentive for suppliers, encourages innovation and risk-taking, and signals new market entrants.