Managerial Economics

Revenue, Cost, and Profit Functions

In the preceding projections for the proposed ice cream bar venture, the assumption was that 36,000 ice cream bars would be sold based on the volume in the prior summer. However, the actual volume for a future venture might be higher or lower. And with an economic profit so close to zero, our students should consider the impact of any such differences.

There is a relationship between the volume or quantity created and sold and the resulting impact on revenue, cost, and profit. These relationships are called the revenue function, cost function, and profit function. These relationships can be expressed in terms of tables, graphs, or algebraic equations.

In a case where a business sells one kind of product or ...