economic profit is different with producer surplus in counting producer surplus: revenue minus variable cost (R-VC) producer surplus depend on cost of their production. High cost of production resulting low producer surplus.
to count profit: revenue minus the variable cost and fixed cost (R-VC-FC) the economic profit takes into account opportunity cost
Economic profit is the difference between total revenue and total cost. Producer surplus is the difference between total revenue and total variable cost. So fixed cost is subtracted to find profit but not producer surplus, and thus profit equals producer surplus minus fixed cost (or producer surplus equals profit plus fixed cost).
economic profit is different with producer surplus
ReplyDeletein counting producer surplus:
revenue minus variable cost (R-VC)
producer surplus depend on cost of their production. High cost of production resulting low producer surplus.
to count profit:
revenue minus the variable cost and fixed cost (R-VC-FC)
the economic profit takes into account opportunity cost
Economic profit is the difference between total revenue and total cost.
ReplyDeleteProducer surplus is the difference between total revenue and total variable cost.
So fixed cost is subtracted to find profit but not producer surplus, and thus profit equals producer surplus minus fixed cost (or producer surplus equals profit plus fixed cost).