Final answer:
Little or no direct relationship with revenue usually indicates costs that do not change with revenue. Explicit costs are direct payments while implicit costs are opportunity costs for using one's own resources. Small 'Mom and Pop' businesses may survive without economic profits due to non-monetary benefits or by covering their explicit costs.
Step-by-step explanation:
When little or no direct relationship exists with revenue, it can indicate a situation where costs do not change in proportion to the revenue generated. This can be understood by exploring the difference between explicit costs and implicit costs as well as the relationship between cost and revenue.
Explicit Costs vs. Implicit Costs
Explicit costs are direct, out-of-pocket payments for resources employed in business operations such as wages, rent, and materials. In contrast, implicit costs represent the opportunity costs of using one's own resources, like the income a business owner forgoes by investing time into their own business rather than working elsewhere.
Relationship Between Cost and Revenue
The relationship between cost and revenue is crucial for business sustainability. While revenue is the income generated from selling goods or services, costs are the expenses incurred to generate that revenue. Ideally, businesses strive for the revenue to exceed costs, achieving positive economic profits. However, small 'Mom and Pop firms', like inner-city grocery stores, may exist without earning economic profits due to non-monetary benefits or because they cover their explicit costs, meaning they make enough to pay for the direct costs but do not necessarily compensate for the implicit costs.
For instance, small businesses might continue operating out of personal fulfillment, community service, or the hope of long-term gains, despite not generating high immediate profits. Such firms may still contribute to overall market diversity and community needs.