Average Profit

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Definition: Average Profit

Average profit is the total profit divided by output.It is an approach used to identify the profit margin that is achieved on each unit of a product that is produced or sold. It can be a normal profit if economic profit (including opportunity cost) is equal to zero.

Average Profit = Average Revenue – Average Cost

‘Average Revenue’, for a specific level of sales, is the total revenue divided by the number of units sold, or in other words, revenue per unit, or, simply, price. This average is over the entire sales in a given time period, market, etc.

‘Average Cost’ is the total cost incurred divided by the number of units produced. In economics, generally, the number of goods produced = the number of goods sold.

Average profit/ revenue/ cost pertain to total sales/ output. As opposed to marginal values, where marginal profit/ revenue/ cost pertains to the specific sales/ output at every point, and basically identifies with the change in profit/ revenue/ cost per unit extra sales/ output.

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