Total revenue, profit and loss

Total revenue (TR) is a firm’s total money receipts from selling goods and services over a period; it is found by multiplying the selling price p by the quantity sold q: TR = p · q. Profit (P) is the difference between total revenue and total cost: P = TR − TC; if this difference is negative, the firm has made a loss. What remains after taxes are paid is called net profit. A large revenue does not always mean a large profit, because costs may also be large, so for the owner profit matters more than revenue. Profit is the entrepreneur’s reward for taking risk, a “thermometer” of the firm’s condition, and a signal of what is more worthwhile to produce. There are two ways to raise profit: increase revenue or reduce costs. Profit is used for taxes, for developing production (investment), and for owners and shareholders as dividends.