Measuring Profit as a Rectangle on the Graph

A firm picks its output where marginal revenue equals marginal cost. That quantity is fixed once you find it. Profit then comes from comparing two things at that exact quantity: the price the firm charges and the average total cost of making each unit. Price minus ATC is profit per unit. Multiply that by the number of units and you get total profit. Geometrically, price minus ATC is a vertical distance, a height, and quantity is a horizontal distance, a width. Height times width is the area of a rectangle, so total profit shows up as one rectangle sitting on the graph, bounded above by price and below by ATC, stretching from zero out to the chosen quantity.

The rectangle only makes sense once the output is already set by MR equals MC. That is the connection to the rest of the unit: the production function and cost curves from earlier give you ATC and MC as curves, the MR equals MC rule from the firm's profit-maximizing decision tells you where on those curves to stand, and this topic just reads off the vertical gap between price and ATC at that one spot. Later, when perfect competition lets new firms enter, this rectangle is what shrinks. Entry pushes price down toward ATC until the rectangle flattens to a line and economic profit hits zero, which is the long-run equilibrium story coming next.