Which calculation gives the firm’s profit margin?
a. Average profit = price × average cost
b. Average profit = price ÷ average cost
c. Average profit = price + average cost
d. Average profit = price – average cost
d. Average profit = price – average cost
If we divide profit by the quantity of output produced, we get average profit, also known as the firm’s profit margin. This is the same as the price minus the average cost. Therefore, profit margin can be expressed as: average profit = price – average cost.
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