Final answer:
The term for the difference between the selling price and the purchase price of a drug is profit margin. It reflects the company's profitability by showing how much profit is made on each dollar of sales after covering the costs. Understanding the difference between accounting profit and economic profit is also crucial in determining a firm's financial success.
Step-by-step explanation:
The term for the difference between the selling price and the purchase price of a drug is profit margin. The profit margin is calculated as the selling price minus the purchase (or average) cost. If the selling price is higher than the average cost, the business realizes a positive profit margin. Conversely, if the selling price is below average cost, the business experiences negative profits.
Understanding the concept of profit margin is crucial in business as it helps determine the financial health and success of a company. Moreover, it is important to distinguish between the concepts of accounting profit and economic profit. Accounting profit is total revenue minus explicit costs, focusing on actual cash flows. On the other hand, economic profit accounts for both explicit and implicit costs, providing a broader perspective on a firm's profitability.