Revenue Equals Cost Plus Profit

Essentially the average cost function is the variable cost per unit of 0 30 plus a portion of the fixed cost allocated across all units.

Revenue equals cost plus profit. Whereas in your case. Supernormal profit is any profit above and beyond the level of normal profit min. If ac ar first of all its the case for competitive firm. Profit needed to keep firm in business.

π r c 1 2 q 40 000. C 50 0 10 x lemonade 0 50 x cookie. Supernormal profit also occurs when average revenue ar is greater than average costs atc this diagram shows how collusion enables firms to make supernormal profit. Profit is defined to be revenue minus cost so the profit function is.

Graphs of revenue cost and profit functions for ice cream bar business at price of 1 50. For low volumes there are few units to spread the fixed cost so the average cost is very high. Since profit is the difference between revenue and cost the profit functions the revenue function minus the cost function. For our simple lemonade stand the profit function would be.

The profit function is just the revenue function minus the cost function. Profit r c. When comparing profit measures using a standard formula for profit margins such as those listed in an income statement creating a profit margin measure based on the cost of revenue would generate. Profit 0 50 x 50 00 0.

Calculating the profit function. Here π is used as the symbol for profit. In symbols π r c p q f v q. Try to understand the meaning of ar ac.

Where c is the total cost. The name says it all. If every cookie cost 50 cents to make our revenue function becomes. Supernormal profit occurs when total revenue total cost.

Note we are measuring economic cost not accounting cost. The amount of revenue earned depends on two things the number of items sold and their selling price. How cost plus pricing works. If explicit costs equal 40 000 implicit costs equal 95 000 and accounting profit equals 23 000 it follows that total revenue equals and economic profit equals.

Of up to 150. Its cost in dollars for a run of hockey jerseys is a gymnast clothing sells the jerseys at 90 each. Revenue is the income earned by a business over a period of time eg one month. Find the revenue function.