A firm determines its profit when it studies its - JAMB Economics 1994 Question

A firm determines its profit by examining its costs (total, average, and marginal) in relation to the revenue it generates. Profit is calculated as total revenue minus total cost. Therefore, a firm must analyze its costs relative to the price in the market (which determines its revenue).

• Marginal Cost: The cost of producing one additional unit of a good or service.
• Average Cost: Total cost divided by the quantity of output.
• Total Cost: The sum of all costs incurred in producing a given level of output.

While the firm needs all these costs to determine profit, the key comparison for profit calculation is the relationship between costs and the market price, which dictates revenue.