Revenue and economic profit
Revenue and economic profit: build the core model, apply it to evidence and qualify conclusions where outcomes depend on context.
9708 section 7.5; A Level. Checked against Cambridge's 2026–2028 Version 2 (latest version published December 2025) and 2029 Version 1 (published September 2026). Cambridge states that neither version has significant changes affecting teaching. Always follow the syllabus for the candidate's examination year.
Before you begin
Work on paper. Try each question before revealing help, and explain why your method works.
Quick readiness check
What is marginal revenue?
What you will learn
- Calculate total, average and marginal revenue
- Distinguish normal, subnormal and supernormal profit
- Calculate profit relative to normal profit
Core model and terms
Total revenue is price multiplied by quantity; average revenue is revenue per unit and equals price when each unit sells at one price. Marginal revenue is the change in total revenue from one more unit. A firm’s demand conditions affect revenue: a price-taking firm faces a different AR and MR relationship from a firm that must lower price to sell more.
Apply and evaluate
Normal profit is the minimum return required to keep resources in their current use and is included in economic cost. Supernormal profit exceeds normal profit; subnormal profit is below it. Compare total revenue with total cost including normal profit, rather than treating accounting profit as the full economic return.
Pause and explain
Which statement best applies revenue and economic profit?
Worked example
A firm sells 40 units at $15 each. Total cost is $520, including normal profit of $80. Calculate total revenue and supernormal profit.
Show the worked solution
- TR = 40 × $15 = $600
- Economic cost is $520
- Profit above normal = 600 − 520 = $80
Answer TR = 40 × $15 = $600 → Economic cost is $520 → Profit above normal = 600 − 520 = $80
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Test this topic →From guided practice to a new situation
Write your answer and reasoning first. Use a hint only if you are stuck. The model solution is for self-checking; your written work is not automatically marked.
A firm sells 40 units at $15 each. Total cost is $520, including normal profit of $80. Calculate total revenue and supernormal profit.
Give me a hint
Find revenue, then compare it with total economic cost.
Compare my reasoning
- TR = 40 × $15 = $600
- Economic cost is $520
- Profit above normal = 600 − 520 = $80
TR = 40 × $15 = $600 Economic cost is $520 Profit above normal = 600 − 520 = $80
Look for these in your work
- TR = 40 × $15 = $600
- Economic cost is $520
- Profit above normal = 600 − 520 = $80
Total revenue rises from $900 to $960 when output rises from 60 to 64 units. Find marginal revenue over this change.
Give me a hint
Divide the change in total revenue by the change in quantity.
Compare my reasoning
- Change in TR = $60
- Change in output = 4 units
- MR over the interval = $60 ÷ 4 = $15 per unit
Change in TR = $60 Change in output = 4 units MR over the interval = $60 ÷ 4 = $15 per unit
Look for these in your work
- Change in TR = $60
- Change in output = 4 units
- MR over the interval = $60 ÷ 4 = $15 per unit
A firm’s revenue is $460 and its total cost including normal profit is $500. Classify its economic profit.
Give me a hint
Compare revenue with full economic cost.
Compare my reasoning
- Revenue is $40 below total economic cost
- The firm earns less than normal profit
- This is subnormal profit
Revenue is $40 below total economic cost The firm earns less than normal profit This is subnormal profit
Look for these in your work
- Revenue is $40 below total economic cost
- The firm earns less than normal profit
- This is subnormal profit
Why can positive accounting profit still be only normal economic profit?
Give me a hint
Include the opportunity cost of resources supplied by the owner.
Compare my reasoning
- Accounting costs may omit the owner’s forgone return
- Economic cost includes that opportunity cost
- Revenue can cover explicit and implicit costs while leaving only normal profit
Accounting costs may omit the owner’s forgone return Economic cost includes that opportunity cost Revenue can cover explicit and implicit costs while leaving only normal profit
Look for these in your work
- Accounting costs may omit the owner’s forgone return
- Economic cost includes that opportunity cost
- Revenue can cover explicit and implicit costs while leaving only normal profit
Common mistakes
- Calling every positive accounting profit supernormal or calculating profit without including normal profit in economic cost.
What can you explain now?
What is marginal revenue?
Compare with the explanation
The change in total revenue from selling an additional unit
It measures the extra revenue associated with a change in output.
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Make it stick
Before moving on, explain the central idea in revenue and economic profit and state one condition that could change its effect.
If you needed the solution, close it and solve the problem again from a blank page. A correct answer is stronger when you can explain the reason for each step.