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I understand that the P-ATC gives the per unit economic profit

Why is this the case? Why wouldn't we take price minus the marginal cost?


Price minus marginal cost gives you marginal profit.

\begin{align*} \text{Total profit}&=\text{Revenue}-\text{Total cost}\\ \frac{\text{Total profit}}{\text{Quantity}}&=\frac{\text{Revenue}-\text{Total cost}}{{\text{Quantity}}}\\ &=\frac{\text{Revenue}}{{\text{Quantity}}} - \frac{\text{Total cost}}{{\text{Quantity}}}\\\\ \text{Per-unit profit}&=\text{Price}-\text{Average total cost} \end{align*}

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  • $\begingroup$ Thanks a lot, this working you showed isn't for magrinal profit, right? $\endgroup$ – Christopher U Dec 11 '19 at 3:17
  • $\begingroup$ And why is revenue per quantity price? $\endgroup$ – Christopher U Dec 11 '19 at 3:18
  • $\begingroup$ When you want to figure out what your revenue (basically total income) is, you multiply the quantity you sell by the per-unit money you get from selling, aka. price. The demand curve is the relationship between price and quantity demanded by the consumers. $\endgroup$ – Art Dec 11 '19 at 3:22
  • $\begingroup$ But isn't quantity you sell multiplied by per unit money you get QR, not Q/R? $\endgroup$ – Christopher U Dec 11 '19 at 3:25
  • 2
    $\begingroup$ Let's call "per-unit money" price. What I said was Q*P = Revenue. So Revenue / Q = P. $\endgroup$ – Art Dec 11 '19 at 3:29

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