Question

When using the profit equation, we always need what 3 things to calculate net profit?

a) Revenue, fixed costs, and variable costs
b) Variable costs, selling price, and fixed costs
c) Revenue, variable costs, and fixed costs
d) None of the above

Answer 1

To calculate net profit, it is necessary to know the revenue, fixed costs, and variable costs of a firm, with revenue being the product of price and quantity sold.

Step-by-step explanation:

To calculate net profit, we must have certain key figures: revenue, fixed costs, and variable costs. As such, the answer to the question 'When using the profit equation, we always need what 3 things to calculate net profit?' is c) Revenue, variable costs, and fixed costs. Revenue is derived from the price of a product multiplied by the quantity sold, whereas total costs include both fixed costs, which do not change with the level of production, and variable costs, which fluctuate with production output. Understanding these three elements is crucial for a firm to evaluate its profit-maximizing strategies and make informed long-term decisions based on average total cost, average variable cost, and marginal cost analyses.