Firms need to measure their success, and simply how much they sell is not accurate enough in telling the whole story. This is where revenue and profit comes in.
Total revenue is equal to all of the money that a firm earns through the sale of their good or service. It is calculated by multiplying the number of sales by the price (TR = QXP).
Total revenue alone though, is also only telling us half the story. Without knowing how much the firm spent on producing each good, we cannot categorically say the firms sales have been a success.
This where profit comes in. Profit is a measurement of all of the money earnt by a firm minus their costs. It is calculated by subtracting the firms total costs from their total revenue (P = TR-TC).
If this value is positive, the firm has made profit. If it is negative, the firm has made a loss.
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