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Profit, Revenue, Cost and Price (demand or supply) are

Profit, Revenue, Cost and Price (demand or supply) are each functions that are dependent on the number of units produced or sold. When a manufacturer sets the selling price of an item, many factors must be considered. Formulae are set up for PRICE and COST using the number of items

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Profit, Revenue, Cost and Price (demand or supply) are

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  1. Profit, Revenue, Cost and Price (demand or supply) are each functions that are dependent on the number of units produced or sold. When a manufacturer sets the selling price of an item, many factors must be considered. Formulae are set up for PRICE and COST using the number of items (produced or sold) as the independent variable. The three basic functions for modelling are: 1. COST is based on many factors and is dependent on the number of items produced or sold. 2. REVENUE = (price per unit) * ( # of units sold) 3. PROFIT = REVENUE - COST

  2. If we let x be the number of units produced/sold (the independent variable) ThenPRICE =p(x) is the price per unit The demand function p(x) defines the relationship between the number of units produced or sold, x, and the selling price (the price per unit at which customers are willing to buy) The supply function p(x) defines the relationship between the number of units produced or sold, x, and the selling price (the price per unit at which a company is willing to sell)

  3. TheCOST function, C(x), is the TOTAL cost of producing x units. C(x) = a +bx + cx2 + dx3 + …. Note: C(100) represents the cost of producing 100 units C(100) - C(99) represents the costs of producing the 100th unit

  4. The REVENUE function, R(x), is the total revenue generated for x units. R(x) = x * p(x)

  5. The profit function, P(x), is the total profit generated for x units. P(x) = R(x) - C(x)

  6. The break even point is when revenue from sales equals the cost of production. At the break-even point, profit changes from negative to positive or positive to negative. "Marginals" are rates of change (of profit, revenue, or cost) with respect to the number of units produced or sold. "Marginals" approximate the incremental profit, revenue, or cost) associated with the sale or production of one more unit PROFIT OR LOSS? Since the break-even point is the point where the company "breaks even", ie. experiences no profit, no loss: Determine the break-even point by setting P(x) = 0, meaning C(x) = R(x), and solve for x. Rates of change??? Ahhh!

  7. Example

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