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In economics, profit is the difference between revenue that an economic entity has received from its outputs and total costs of its inputs, also known as surplus value. [1] It is equal to total revenue minus total cost, including both explicit and implicit costs. [2]
Profit maximization using the total revenue and total cost curves of a perfect competitor. To obtain the profit maximizing output quantity, we start by recognizing that profit is equal to total revenue minus total cost (). Given a table of costs and revenues at each quantity, we can either compute equations or plot the data directly on a graph.
Profit, in accounting, is an income distributed to the owner in a profitable market production process . Profit is a measure of profitability which is the owner's major interest in the income-formation process of market production.
It is opposed to net income, defined as the gross income minus taxes and other deductions (e.g., mandatory pension contributions). For a business, gross income (also gross profit , sales profit , or credit sales ) is the difference between revenue and the cost of making a product or providing a service, before deducting overheads , payroll ...
In business and accounting, net income (also total comprehensive income, net earnings, net profit, bottom line, sales profit, or credit sales) is an entity's income minus cost of goods sold, expenses, depreciation and amortization, interest, and taxes for an accounting period. [1] [better source needed]
Implicit costs also represent the divergence between economic profit (total revenues minus total costs, where total costs are the sum of implicit and explicit costs) and accounting profit (total revenues minus only explicit costs). Since economic profit includes these extra opportunity costs, it will always be less than or equal to accounting ...
This is to be contrasted with the "bottom line" which denotes net income (gross revenues minus total expenses). [3] In general usage, revenue is the total amount of income by the sale of goods or services related to the company's operations. Sales revenue is income received from selling goods or services over a period of time.
Both firms produce a homogenous product: given the total amount supplied by the two firms, the (single) industry price is determined using the demand curve. This determines the revenues of each firm (the industry price times the quantity supplied by the firm). The profit of each firm is then this revenue minus the cost of producing the output.