Question

A firm's profit equation equals:______.
A. Total cost + Total revenue or [(Fixed cost + Variable cost) + (Unit price × Quantity sold)].
B. Total revenue - Total cost or [(Unit price × Quantity sold) - (Fixed cost + Variable cost)].
C. Total cost - Marginal cost or [(Fixed cost + Variable cost) - (Unit price × Quantity sold)].
D. Total cost - Variable cost or [(Fixed cost + Variable cost) - (Unit price × Quantity sold)].
E. Total revenue ÷ Total cost or [(Unit price × Quantity sold) ÷ (Fixed cost + Variable cost)]

Answer 1

Answer:

B. Total revenue - Total cost or [(Unit price × Quantity sold) - (Fixed cost + Variable cost)].

Explanation:

Profit is the gain or reward a business gets for engaging in its regular economic activities. Profits are realized if revenues exceed costs. Businesses are established to make profits.

Calculation of profits involves obtaining the net revenues from the business transactions and subtracting the total expenses. Net revenue is the total units sold multiplied by the selling price. The business has to adjust for discounts allowed, and goods returned. Total costs are all the expenses in the business processes. They include fixed costs, variable costs, and relevant taxes.