How does a firm calculate its profit?

Answer and Explanation:

What is Profit:

Profit is a positive value for revenue minus costs. (A negative difference always shows a loss.)

How is profit calculated in a firm:

The easiest way to find profit is to take the total revenue of the business and minus the total cost of the business. Hence, Profit = Total Revenue - Total Cost.

The total revenue or TR, is calculated from the price of a goods multiplied with the quantity of goods sold. While the total cost, or TC, is the sum of fixed cost and variable cost incurred. Hence, now the equation becomes as follows

Profit = P. Q - (Fixed Cost + Variable Cost).