Managerial Economics

Revenue, Cost, and Profit

Most businesses sell something—either a physical commodity like an ice cream bar or a service like a car repair. In a modern economy, that sale is made in return for money or at least is evaluated in monetary terms. The total monetary value of the goods or services sold is called revenue.

Few businesses are able to sell something without incurring expenses to make the sale possible. The collective expenses incurred to generate revenue over a period of time, expressed in terms of monetary value, are the cost. Some cost elements are related to the volume of sales; that is, as sales go up, the expenses go up. These costs are called variable costs. The cost of raw materials used to make an item of clothing would be an example ...