concept of cost and revenue in economics pdf

Concept Of Cost And Revenue In Economics Pdf

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Revenue , in economics , the income that a firm receives from the sale of a good or service to its customers.

Normal Profits Minimum profits required to keep the entrepreneur in production in the long run. Implicit cost Fast Fans Ltd uses its own money reserves and surplus to buy a machine Opportunity cost of using the firms own money is the Implicit Cost.

Theory of Cost & Revenue

Revenue , in economics , the income that a firm receives from the sale of a good or service to its customers. Technically, revenue is calculated by multiplying the price p of the good by the quantity produced and sold q. The sum of revenues from all products and services that a company produces is called total revenue TR. An important aspect of revenue in economic analysis is the notion of marginal revenue. The marginal revenue acquired from a product is the additional revenue that the firm earns by selling one more unit of that product.

A firm desiring to maximize its profits will, in theory, continue to expand its output as long as the revenue from the last additional unit produced marginal revenue exceeds the cost of producing that last unit marginal cost. Revenue Article Additional Info. Print Cite verified Cite. While every effort has been made to follow citation style rules, there may be some discrepancies. Please refer to the appropriate style manual or other sources if you have any questions.

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THEORY OF COST AND REVENUE

In economics , profit maximization is the short run or long run process by which a firm may determine the price , input and output levels that lead to the highest profit. Neoclassical economics , currently the mainstream approach to microeconomics , usually models the firm as maximizing profit. There are several perspectives one can take on this problem. First, since profit equals revenue minus cost , one can plot graphically each of the variables revenue and cost as functions of the level of output and find the output level that maximizes the difference or this can be done with a table of values instead of a graph. Second, if specific functional forms are known for revenue and cost in terms of output, one can use calculus to maximize profit with respect to the output level.

Normal Profits Minimum profits required to keep the entrepreneur in production in the long run. Implicit cost Fast Fans Ltd uses its own money reserves and surplus to buy a machine Opportunity cost of using the firms own money is the Implicit Cost. Private vs Social Costs Private Costs : incurred by a firm when it produces a commodity Eg: cost of raw material. Social Costs : borne by society as a whole when a firm produces a commodity Eg: loss of marine life from pollutants from production process. Can never be zero in the short run.

Concept of Revenue and Its Types | Microeconomics

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Cost refers to an amount to be paid or given up to acquire any resources or services. In economics cost can be defined as a monetary,valuation of effort, materials,resources,time and opportunity forgone in production of goods and services. Cost also refers to how to order level of production.

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THEORY OF COST AND REVENUE

Revenue is the income a firm retains from selling its products once it has paid indirect tax, such as VAT. Revenue provides the income which a firm needs to enable it to cover its costs of production , and from which it can derive a profit. Total revenue TR , is the total flow of income to a firm from selling a given quantity of output at a given price, less tax going to the government.

Cost , in common usage, the monetary value of goods and services that producers and consumers purchase. In a basic economic sense, cost is the measure of the alternative opportunities foregone in the choice of one good or activity over others. This fundamental cost is usually referred to as opportunity cost. For a consumer with a fixed income, the opportunity cost of purchasing a new domestic appliance may be, for example, the value of a vacation trip not taken. More conventionally, cost has to do with the relationship between the value of production inputs and the level of output. Total cost refers to the total expense incurred in reaching a particular level of output; if such total cost is divided by the quantity produced, average or unit cost is obtained. A portion of the total cost known as fixed cost —e.

Read this article to learn about the meaning and concept of revenue, micro economics! The amount of money that a producer receives in exchange for the sale proceeds is known as revenue. For example, if a firm gets Rs. Image Courtesy : 0. Revenue refers to the amount received by a firm from the sale of a given quantity of a commodity in the market. Revenue is a very important concept in economic analysis.

Every firm or producer aims at maximisation of its profits. The maximisation of profit is only possible when the cost of production of a commodity is at its minimum level and the price is at its maximum level. Thus, the volume of profit is the difference between the total revenue and total cost of an individual firm or producer.

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