Economic Profits 

• Definition: Profits = Total Revenues (TR) - Total Economic Costs (TC)
• Real-World Example: Think of baking and selling cookies; you subtract the cost of ingredients and baking tools from the total money earned from selling cookies to get profits!.
• Revenues
• Total Revenues (TR): Money collected from selling goods, TR = Price (P) * Quantity (Q) sold.
• Average Revenue (AR): Revenue per unit sold, AR = P.
• Fun Fact: The demand curve a firm faces is also its AR curve. If you imagine the line of people waiting to buy the latest video game, that's your demand curve!

Explicit and Implicit Costs

• Explicit Costs: Out-of-pocket costs, like paying for raw materials.
• Implicit Costs: Value of firm-owned resources like buildings.
• Real-World Example: Think of a lemonade stand! Explicit costs include lemons and sugar, while implicit costs could include the table you already owned.

 Normal Profit

• Part of the economic cost; it's what an entrepreneur could earn elsewhere with the same risk.
• Example: If you can earn $10 playing music but choose to run a business, you'd expect at least $10 from your business. It's like picking one game to play over another; you'd expect at least as much fun!

 Average Costs (AC)

• AC = Total Costs (TC) / Quantity (Q). It's like slicing a cake and figuring out the cost of each slice!.
• Profit Maximization:
• Marginal Cost (MC): Extra cost of making one more product. Imagine the exhaustion from baking one more cookie!
• Marginal Revenue (MR): Extra revenue from selling one more product. It's the cash from that extra cookie sale!
• Nike-Swoosh Shape: The MC has a curve like the Nike logo, thanks to diminishing returns. Think of squeezing lemons; at first, it's easy, then it gets harder!
• Rule: Firms maximize profits where MR = MC. If it's like a game score, you want to balance the scores to win!