Concepts of Gross Profits, Net Profits and Producer's Equilibrium

• Gross Profit = Total Revenue – Total Variable Cost
  Gross Profit = TR − TVC
• It shows how much the producer earns after covering only variable costs.
• Fixed costs (like rent and machinery) are not subtracted here.

• Net Profit = Total Revenue – Total Cost
  Net Profit = TR − TC
• We know:
  TC = TFC + TVC
• So,
  Net Profit = TR − TVC − TFC
• Net profit is what the producer actually takes home after all expenses.

From the equations:

Net Profit = TR − TVC − TFC
Gross Profit = TR − TVC

So,

Net Profit = Gross Profit − TFC

In words:

• Net Profit = Gross Profit – Fixed Costs

• Producer’s equilibrium is the output where net profit is maximum.
• Since TFC is fixed (same at all output levels),
  Maximising gross profit (TR – TVC) automatically maximises net profit (TR – TC).
• So, in producer’s equilibrium:
  $Maximize\; (TR\; -\; TVC)\; ⟹\; Maximise(TR-TC)$

• Gross Profit = TR – TVC (after variable costs only).
• Net Profit = TR – TC = TR – TVC – TFC (after all costs).
• Net Profit = Gross Profit – TFC.
• When TFC is fixed, maximising gross profit also maximises net profit.
• Producer’s equilibrium is the output where net profit is maximum (and thus gross profit is also maximum).