Final answer:
To model the relationship between key business metrics, one can use the contribution margin method and the volume-profit method.
Step-by-step explanation:
Methods that can be used to model the relationship between revenues, costs, profit, and volume include the contribution margin method and the contribution volume-profit method. The contribution margin is calculated by subtracting variable costs from sales revenues, which gives the amount remaining to cover fixed costs and contribute to profit.
Understanding the difference between explicit costs and implicit costs is essential. Explicit costs are out-of-pocket expenditures, like wages and rent, while implicit costs represent the opportunity costs of using resources owned by the business. Accounting profit takes into account only explicit costs, while economic profit also deducts implicit costs.
Revenue relations with cost involve concepts such as average profit (profit margin), which is calculated by dividing profit by the quantity of output, and average total cost, which is total cost divided by the quantity of output. Recognizing constant returns to scale where output proportionately increases with inputs without changing the average cost is also significant for business decision-making.