TR=TC is normal profit. Why and how?

Dear Student, the equality between Total Revenue (TR) and Total Cost (TC) implies that revenues are equal to costs. This means that a firm is just managing to earn the amount of revenue which is just sufficient to cover its costs of production. In such a situation, a firm is said to earn normal profits or zero economic profits. This implies that the firm is able to cover both of the types of costs- fixed costs and variable costs. 

In case, TR > TC, then a firm is earning more than what it has invested in terms of costs. This means that the revenues are in excess of costs (fixed as well as variable costs). This is a situation of super-normal profits or positive profits.

On the contrast, if TR < TC, then a firm is incurring losses. This means that the firm's revenues are not enough to finance its costs of production. In such a situation, it can either that the firm is not able to cover its fixed cost of production or it is not unable to cover its variable costs (in addition to fixed costs). In the latter case, it should shut-down its production, whereas, in the former case, it may continue to run.

  • 5

in economics it is also called zero economic Profit snce your revenue is just equal to cover your costs..hence it is called normal..anything above that is called super-normal profit

  • 1
What are you looking for?