Final answer:
Profit calculation is essential for business decisions, involving subtraction of both fixed and variable costs from total revenue to determine profitability. Negative results indicate a loss, suggesting a business reassessment.
Step-by-step explanation:
When analyzing a business's financial decisions, determining profit is a crucial factor. Profit is generally calculated as Total Revenue minus Total Cost, which includes both fixed and variable costs. For example, if a center earns revenues of $20,000 with variable costs of $15,000 and fixed costs of $10,000, the profit would be calculated as $20,000 - ($10,000 + $15,000) = -$5,000, indicating a loss. Similarly, if the revenue drops to $10,000 while the costs remain the same, the loss increases to -$15,000, suggesting that the center should potentially shut down to avoid further losses. Lastly, when considering economic profit, one must also deduct implicit costs from the total revenue along with explicit costs to get a clear picture of the financial health.