This document discusses profit, how it is defined as revenue minus costs, and how businesses determine optimal output levels and prices to maximize profit. It defines key terms like total revenue, total costs, marginal revenue, and marginal costs. It also discusses different approaches to cost reduction like lean production and outsourcing non-core activities to improve profitability.

2. is the making of gain in
Business activity for the benefit of
the owners of the business.

3. The total amount of money that the firm
receives from sales of its product or other
sources.
The cost of all factors of production.

4.  Profit is the surplus of revenue over and
above all paid-out costs, including both
manufacturing and overhead expenses.
 It is the difference between a Company’s
total revenue and its opportunity cost.

8. A monopolist maximizes profit by choosing a
quantity where marginal revenue equals marginal
cost
A process that companies undergo to determine the
best output and price levels in order to maximize its return.
 Total Revenue Total cost Method
 Marginal Revenue Marginal Cost
Method

9.  PROFIT = TR-TC
 Total Revenue (TR): This is the total income a firm
receives.
 Total cost: refers to the total expense incurred in
reaching a particular level of output; if such total cost
is divided by the quantity produced, average or unit
cost is obtained.
 MARGINAL REVENUE:IS THE CHANGE IN
REVENUE WHICH COMES FROM SELLING AN
ADDITIONAL UNIT OF OUTPUT.
 MARGINAL COST:IS THE CHANGE IN COST
WHICH COMES FROM PRODUCING AN
ADDITIONAL UNIT OF OUTPUT.

10.  Haziness of the concept “Profit”
 Ignores Time Value of Money
 Ignores the Risk
 Ignores Quality

11. - Aims to achieve the most cost-effective
way of delivering goods
and services to the required level of
quality.

12. Lower unit cost (competitiveness)
Higher gross profit margin
Higher operating profits
Improved cash flow
Higher ROCE

13.  Strategic
-based on the business model
location production overseas
core activities versus outsourced
 Tactical
-focused on the detailed function
choice of suppliers
approach to stock holding

14.  Eliminating waste and avoiding(lean production)
 Simplifying processes and procedures
 Outsourcing non-core activities(e.g. transaction
processing, payroll, call handling)
 Negotiating better pricing with suppliers
 Pruning product ranges and costumer accounts to
eliminate unprofitable business
 Using the most effective methods of training and
recruitment
 Introducing flexible working practices
 Aggressive control of overheads(e.g. banning
first/business class travel)

15.  Business left with insufficient capacity to
handle unexpected or short-term increases in
demand
 Cost reductions by one department may
surprise and /or annoy other functions if
they are not properly communicated and
coordinated

16. A profit center is separately-identifiable
part of a business for which it is possible to
identify revenues and cost (i.e. calculate
profit)