What is the standard formula for economic profit or loss?

• A. Profit/ Loss = Total Revenue - Total Cost
• B. Total Revenue = Total Cost
• C. Profit = Price - Average Cost
• D. Total Cost = Total Revenue - Profit

Answer: (A)

Profit is the difference between what a firm earns in revenue and what it spends on costs. The standard economic profit or loss formula is Profit = Total Revenue − Total Cost. This directly shows that if revenue exceeds costs, you have a profit; if costs exceed revenue, you have a loss. The idea is to express the payoff from the firm’s activities as the net difference between inflows and outflows. While Total Revenue = Total Cost describes a break-even situation (zero profit), and Profit = Price − Average Cost gives per-unit profit rather than total profit (unless you multiply by quantity), the conventional way to define profit is the difference between total revenue and total costs. Total Cost = Total Revenue − Profit is just a rearrangement of the same relationship, but the standard form is the first expression.