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PROFIT-MAXIMIZING IN AGRICULTURAL PRODUCTION - Coggle Diagram
PROFIT-MAXIMIZING IN AGRICULTURAL PRODUCTION
CONCEPT
Total revenues
TR is the total amount that firm takes in form the sales of its product. the price per unit times the quantity of output the firm decides to produce
MARGINAL REVEUE
MR is the added revenue that a firm takes in when it increases output by one additional unit
AVERAGE REVENUE
PROFIT-MAXIMIZATION DECISION (EQUILIBRIUM OF FIRM)
-how the management decides the amount to produce to maximize profits or minimize losses
-profit is difference between total revenue and total cost
two approaches can be used to determine this output:
-aggregate approach (total revenues vs total cost)
-marginal approach (marginal revenue vs marginal cost)
TYPE OF PROFIT
normal profit
the minimum reward that is just sufficient to keep the entrepreneur operating their enterprise
the revenue is sufficient to coverall the costs
exists when total revenue (TR) = total cost
profit is equals to zero
supernormal profit
also called as an economic profit
firm makes more than normal profits
the excess of revenue over expenses; or a positive return on an investment
earned when total revenue is greater than total costs, TR > TC
subnormal profit
profits less than normal profit
profit below normal which should lead to firms leaving the indusrty
firm fail cover their total cost
the firm cost are greater than its revenue. TR<TC