Final answer:
The difference between profit and revenue is that profit accounts for expenses while revenue does not. Profit is the total revenue minus total costs, including both explicit and implicit costs, whereas revenue is the total income earned without deductions.
Step-by-step explanation:
Profit and revenue are fundamental financial metrics in business, and understanding the difference between them is crucial for any company, including a small independent motion picture company. The correct answer to the question is A) Profit includes expenses; revenue does not. Revenue is the total amount of money that is brought into a company through its activities, without subtracting any costs. On the other hand, profit is calculated by taking the total revenue and subtracting the total costs, which includes both explicit and implicit costs.
Explicit costs are out-of-pocket expenses, such as wages, rent, and materials, while implicit costs are the opportunity costs of using resources that the company already owns. The difference between these types of costs is important for understanding economic profit versus accounting profit. Economic profit is calculated by subtracting both explicit and implicit costs from revenue, while accounting profit considers only explicit costs.
Therefore, revenue is not affected by any expenses, costs, or losses that the company may incur, while profit directly depends on both the revenue generated and the costs incurred by the business.