Concepts of Cost and Revenue

The business decision of a firm engaged in production of goods and services depends on two important factors, viz. the cost and the revenue. While the cost represents the expenditure side of he business, the revenue earned to know the profitability or otherwise of a given output. As long as the cost of production is less than the revenue, the producer always compares cost of production with the revenue earned to know the profitability or otherwise of a given output. As long as the cost of production is less than the revenue earned, the producer incurs loss. A rational producer always aims at maximization of profit, and in the short-run, if loss is unavoidable, minimization of loss. Since profit or loss cannot be calculated without cost and revenue, their analysis is very important both from the theoretical and practical point of view.