Profit = total revenue − total cost. Total revenue (TR) = price × quantity sold. Total cost (TC) = fixed cost + variable cost. A firm makes a profit when TR is greater than TC, a loss when it is less, and breaks even when they are equal. This lesson completes firms, costs and scale by linking the earlier cost work to income.
How do you work it out step by step?
- Find TR: price × quantity.
- Find TC: fixed cost + (variable cost per unit × quantity). See fixed, variable and total costs.
- Subtract: profit = TR − TC.
- Interpret: positive is profit, negative is loss, zero is break-even.
- Optional, break-even output (if in scope): fixed cost ÷ (price − variable cost per unit).
Worked example
Mawar Bakery (a fictional shop) sells loaves at RM4.00. Fixed costs are RM3,000 a month and variable cost is RM1.50 per loaf.
Profit at 3,000 loaves.
- TR = 4.00 × 3,000 = RM12,000
- TC = 3,000 + (1.50 × 3,000) = 3,000 + 4,500 = RM7,500
- Profit = 12,000 − 7,500 = RM4,500
Result at 800 loaves.
- TR = 4.00 × 800 = RM3,200
- TC = 3,000 + (1.50 × 800) = 3,000 + 1,200 = RM4,200
- Profit = 3,200 − 4,200 = −RM1,000, a loss of RM1,000
Break-even output. Each loaf adds 4.00 − 1.50 = RM2.50 towards covering the RM3,000 fixed cost. 3,000 ÷ 2.50 = 1,200 loaves.
Check: TR = 4.00 × 1,200 = RM4,800. TC = 3,000 + 1.50 × 1,200 = 3,000 + 1,800 = RM4,800. Profit = 0. ✓
The mistake to watch for
Mistaken answer: “At 800 loaves, profit is RM3,200 − RM1,200 = RM2,000.”
The student subtracted only the variable cost and forgot the fixed RM3,000. Fixed costs are still paid when output is low. Always build TC from both parts before subtracting.
If a profit looks surprisingly good at low output, check whether the fixed cost has been left out.
Check yourself
1. Price RM5, quantity 2,000 units, total cost RM8,200. Find profit.
Show answer
TR = 5 × 2,000 = RM10,000. Profit = 10,000 − 8,200 = RM1,800.
2. Fixed cost RM2,000, variable cost RM3 per unit, price RM5. Find the break-even output (if in scope for you).
Show answer
Contribution per unit = 5 − 3 = RM2. Break-even = 2,000 ÷ 2 = 1,000 units. Check: TR = 5,000, TC = 2,000 + 3,000 = 5,000.
3. A firm cuts its price to RM4 and sells 2,500 units at a total cost of RM9,000. Find profit.
Show answer
TR = 4 × 2,500 = RM10,000. Profit = 10,000 − 9,000 = RM1,000.
Where this leads next
Revisit comparing firm size to see profit margin in use, then test everything in the mixed practice set. The percentage-base explorer works for margins.
If calculations are fine but you hesitate on explaining why profit changed, a teacher can help you build that written link. See our online one-to-one Economics tuition.