Costs, revenues and profit

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  • Costs, Revenues and Profit
    • Costs
      • what firms must invest in to run their business
      • Fixed - costs that do not vary with output (e.g. rent)
      • Variable - costs that vary directly with output (e.g. raw materials)
      • Average costs = total costs/output
      • Total costs = fixed costs + variable costs
      • A businesses costs are aimed to be as low as possible to ensure that they have an achievable amount of profit.
    • Revenue
      • Total revenue - price x quantity sold
      • The amount a firm receives from selling its products
      • Total revenue = total revenue/output
      • It is important for a business to gain as much revenue as possible to make the highest possible profit.
      • If the business doesn't make enough revenue, there could be higher costs resulting in a loss.
    • Profit
      • Profit = total revenue - total costs
      • The money left over after costs are paid
      • Especially for new businesses, profit is mainly used to improve the efficiency and quality of the service or products sold. Also, profit is put towards the growth of the business.


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