To discuss total revenue, total cost, and total profit, let’s define each term:
1. **Total Revenue (TR)**: This is the total amount of money earned by a business from selling its goods and services. It can be calculated by multiplying the price at which goods or services are sold by the quantity sold. The formula is:
\[
\text{Total Revenue} = \text{Price per Unit} \times \text{Quantity Sold}
\]
2. **Total Cost (TC)**: This represents the total expense incurred in producing and selling the goods or services. Total cost includes both fixed costs (costs that do not change with the level of output, like rent and salaries) and variable costs (costs that vary directly with the level of production, like materials and labor). The formula can be:
\[
\text{Total Cost} = \text{Fixed Costs} + \text{Variable Costs}
\]
Where Variable Costs can be further broken down as:
\[
\text{Variable Costs} = \text{Variable Cost per Unit} \times \text{Quantity Produced}
\]
3. **Total Profit (TP)**: This is the amount of money a business makes after all expenses are subtracted from total revenue. It’s essentially what remains from the revenue after covering all the costs associated with the production and sale of the goods or services. The formula for total profit is:
\[
\text{Total Profit} = \text{Total Revenue} – \text{Total Cost}
\]
See below a numerical example demonstrating these calculations:
Let’s consider a simple example where a company is manufacturing and selling a product. Here are the details:
– **Price per unit**: $50
– **Quantity sold**: 100 units
– **Fixed costs**: $2000 (This could include costs like rent, salaries of permanent staff, etc.)
– **Variable cost per unit**: $20
First, we’ll calculate the **Total Revenue**, **Total Cost**, and then **Total Profit** using these numbers.
### Calculation:
1. **Total Revenue (TR)**
\[
TR = \text{Price per Unit} \times \text{Quantity Sold} = 50 \times 100
\]
2. **Total Cost (TC)**
– **Variable Costs**
\[
\text{Variable Costs} = \text{Variable Cost per Unit} \times \text{Quantity Sold} = 20 \times 100
\]
– **Total Cost**
\[
TC = \text{Fixed Costs} + \text{Variable Costs} = 2000 + (20 \times 100)
\]
3. **Total Profit (TP)**
\[
TP = TR – TC
\]
Let’s calculate these values.
Based on the provided details:
– **Total Revenue** is $5000, calculated as 100 units sold at $50 each.
– **Total Cost** is $4000, which includes $2000 of fixed costs and $2000 of variable costs (100 units at $20 per unit).
– **Total Profit** is $1000, found by subtracting the total cost from the total revenue.
So, the company makes a profit of $1000 from this operation.
