A firm produces and sells a certain amount of goods. The firm's profit, denoted by π 1, is defined to be the difference between its total revenue (TR) and its total cost of production (TC). So, π = TR – TC Clearly, the gap between TR and TC is the firm's earnings net of costs. A firm wishes to maximize its profit. The firm would like to identify the quantity q0 at which its profits are maximum. So, at any quantity other than q0, the firm's profits are less than at q0. For-profits to be leading, three conditions must hold at q0: 1. The price, p, must equal MC 2. The marginal cost must be non-decreasing at q0 3. For the firm to continue to produce, in the short run, the price must be greater than the average variable cost (p > AVC), and in the long run, the price must be greater than the average value (p > AC).