![]() ![]() (The letter P is reserved for use later as a symbol for price.) Since profit is the difference between revenue and cost, the profit functions The revenue function minus the cost function in symbols π = R - C = (P*Q) - (F + V*Q). Note we are measuring economic cost, not accounting cost. The equation for the cost function is C = $40,000 + $0.3 Q, for the ice cream bar venture has two components: the fixed cost component of $40,000 that remains the same regardless of the volume of units and the variable cost component of $0.30 times the number of items. The cost function The sum of fixed cost and the product of the variable cost per unit times quantity of units produced, also called total cost C = F + V*Q. Where R is the revenue and Q is the number of units sold. If we assume ice cream bars will be sold for $1.50 apiece, the equation for the revenue function The product of the price per unit times the number of units sold R = P*Q. In a case where a business sells one kind of product or service, revenue is the product of the price per unit times the number of units sold. These relationships can be expressed in terms of tables, graphs, or algebraic equations. These relationships are called the revenue function, cost function, and profit function. There is a relationship between the volume or quantity created and sold and the resulting impact on revenue, cost, and profit. ![]() And with an economic profit so close to zero, our students should consider the impact of any such differences. However, the actual volume for a future venture might be higher or lower. In the preceding projections for the proposed ice cream bar venture, the assumption was that 36,000 ice cream bars would be sold based on the volume in the prior summer. ![]()
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