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Revenue, Cost, and Profit definitions

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  • Revenue
    Amount of money received from sales, calculated as price times quantity, representing the benefits to a firm before considering costs.
  • Total Revenue
    Sum of all money a firm receives from selling its output, found by multiplying price by quantity sold.
  • Cost
    Value of inputs used in production, representing what a firm gives up to create output, including both monetary and non-monetary sacrifices.
  • Explicit Cost
    Direct monetary payment for resources, such as wages, rent, or materials, easily observed as money leaving the firm.
  • Implicit Cost
    Non-monetary opportunity cost, like foregone salary or interest, reflecting benefits sacrificed by choosing one option over another.
  • Opportunity Cost
    Value of the next best alternative forgone when a choice is made, including both explicit and implicit components.
  • Profit
    Difference between revenue and cost, representing what remains after all expenses are subtracted from total income.
  • Accounting Profit
    Amount left after subtracting only explicit costs from revenue, not considering opportunity costs of resources.
  • Economic Profit
    Amount remaining after subtracting both explicit and implicit costs from revenue, reflecting true profitability.
  • Fixed Cost
    Expense that remains unchanged regardless of output level, such as rent or salaried employees, in the short run.
  • Variable Cost
    Expense that changes with the level of output, like materials or hourly labor, increasing as production rises.
  • Total Cost
    Sum of fixed and variable costs, representing all expenses incurred in producing a given level of output.
  • Average Cost
    Cost per unit of output, found by dividing total, fixed, or variable cost by the quantity produced.
  • Short Run
    Time period in which at least one cost is fixed, limiting a firm's ability to fully adjust all inputs.
  • Long Run
    Time period when all costs become variable, allowing a firm to adjust all inputs and reevaluate its operations.