Mostly summarized from Gregory Mankiw’s Principles of Economics, 5th Ed.

PART 5 Firm Behavior and the Organization of Industry
Chapter 14 of 36 - Firms In Competitive Markets
Section 15 of 22
…
Figure 5 - Profit as the Area between Price and Average Total Cost
The area of the shaded box between price and average total cost (ATC) is the firm's profit, or loss.
Height of this box is price (P) minus average total cost, P – ATC (profit per unit).
Width of the box is the output quantity, (Q).
Panel (a), P is above ATC, the firm has profit.
Panel (b), P is below ATC, the firm has loss.
…
Panel (a) shows a firm with a profit.
A firm maximizes profit by producing the Q at which P = MC (MC being average variable costs).
The area of the rectangle (P - ATC) x Q is the firm's profit.
…
Panel (b) shows a firm with a loss .
Here the firm wants to minimize losses.
This is also achieved by producing the Q where P = MC.
The area of the rectangle (ATC - P) x Q is the firm's loss.
…
A firm in a loss situation
· is not making enough revenue to cover its ATC = sum of average fixed and variable costs.
· will exit the market if the loss continues in the long run
… …
area of the shaded box
amigake bako menseki
網掛け箱面積

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