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Revenue, Cost, and Profit definitions

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  • Revenue
    Amount received from sales, representing the inflow of money to a firm, calculated as price times quantity sold.
  • Total Revenue
    Sum of all money earned from sales, found by multiplying the selling price by the number of units sold.
  • Cost
    Value of inputs used in production, representing the outflow of resources necessary to create output.
  • Explicit Cost
    Direct monetary expenditure, such as wages or rent, easily observed as money leaving the firm.
  • Implicit Cost
    Non-monetary opportunity cost, like foregone salary or interest, reflecting benefits sacrificed without cash payment.
  • Opportunity Cost
    Value of the next best alternative forgone when a decision is made, including both monetary and non-monetary sacrifices.
  • Profit
    Difference between revenue and cost, representing what remains after all expenses are subtracted from sales income.
  • Accounting Profit
    Amount left after subtracting explicit costs from revenue, focusing only on direct monetary expenses.
  • Economic Profit
    Amount left after subtracting both explicit and implicit costs from revenue, reflecting true opportunity costs.
  • Fixed Cost
    Expense that remains unchanged regardless of output level, such as rent or salaried employees.
  • Variable Cost
    Expense that changes with output, including items like raw materials and day laborers.
  • Total Cost
    Sum of fixed and variable costs, representing all expenses incurred in production.
  • Average Fixed Cost
    Fixed cost per unit of output, calculated by dividing total fixed cost by the quantity produced.
  • Average Variable Cost
    Variable cost per unit of output, found by dividing total variable cost by the number of units produced.
  • Average Total Cost
    Total cost per unit, determined by dividing total cost by output or by adding average fixed and average variable costs.
  • Short Run
    Time period in which at least one cost is fixed, limiting a firm's ability to adjust all inputs.
  • Long Run
    Time period when all costs become variable, allowing full adjustment of business operations and inputs.