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Profit Maximization... Continued
Also note that the curve on the bottom part of figure 3.3 represents total revenues. The TR increases from negative to positive, reaching the highest point where profit is maximized and then declining back to negative.
20 Minutes
Work in groups of four and discuss what will happen if:
Overall, it has been clear that each farmer who plans to transform their farm into a firm must account for all costs, both explicit and implicit. Implicit costs include resources owned by the farmer (including his or her own time and his or her own children’s time at market price) for which they would earn money if they sold to someone else. When all of these costs are accounted for, a farmer can make abnormal profits if the total revenues exceed total costs, normal profits if total revenues equal total costs and economic loss if total revenues are less than total costs. For a competitive market, since the price per unit is set by the market (the farmer can not affect it), the role of the farmer would be to strive to reduce the costs if they wanted to increase their profits.
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