What is the difference between profit and revenue?

The answer is: Revenue is the total amount producers receive after selling a good. Profit is the total amount producers earn after subtracting the production costs.

To understand this let's take a look the case example.

Let's say you want to open a lemonade stand.

To make 1 glass of lemonade, you need to buy materials consisting of water + lemon + sugar + ice. For these, you need to spend 50 cent.

You sold that lemonade for $ 1 per Glass.

If you sell 10 glasses.

- You need to spend $5  for materials (50 cent x 10). This $ 5 represent the production costs.

- You would obtain $ 10 from the sales ($1 x 10). This $10 represent your revenue.

- Since your revenue is larger than your cost, you would have more money compared to when you start the business.

you would have an increase of: $10 -  $ 5 = $ 5.  This number represent your Profit.

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