Answer to Question #127170 in Microeconomics for Manav bhandari

Question

Suppose that the owner and CEO of a firm that operates in a PERFECTLY COMPETITIVE market environment comes to see you for help. She has question to ask you as her best Economist friend.
(i) After talking to another economist friend, Mary, my question, she says, is: “And then this morning Mary said that after the market responds to our current extra-ordinary economic profit, that we may be in a position where our Total Revenue, TR is less that our Total Cost, TC. I said that was awful, we would have to Shut Down! But Mary said, no we won’t because our Total Revenue will still be greater than our Total Variable Cost, TVC. Can you explain WHY this result matters to me and what I should do, please?”

Answer 1

$$TR=p \times Q$$

where p is price, Q - output quantity of product.

$$TC=FC+VC$$

where FC is fixed costs, what is constatly for each quantity of product and

VC is variable costs, which vary with different quantities of product.

If

$$TR>TVC$$

we can say that the results of the factory are positive.