The Profit Equation
The basic formula used by business owners to calculate profit.
What is Income: Expense = Profit?
An economic system based on traditions and customs passed down through generations, often found in rural or remote areas.
Traditional Economy
What is Direct Competition?
Rivalry between businesses that offer similar types of goods or services, like two pizza shops.
This is the money left over after only the cost-of-goods expense is subtracted from total income.
Gross Profit
This is the basic formula used by business owners to calculate profit.
Income - Expense = Profit
What is Gross Profit?
This type of profit is calculated by subtracting only the cost of goods from total income.
The market structure characterized by a large number of buyers and sellers of nearly identical products, like agricultural goods.
Perfect Competition
Competition that occurs between businesses offering dissimilar goods, such as a movie theater and a bowling alley competing for entertainment dollars.
What is Indirect Competition?
This is the precise calculation of the reward received after all business expenses are accounted for.
Net profit
What is no profit (or a loss)?
When a business's expenses are greater than its income, this undesirable situation occurs.
The amount of money a business pays for raw materials used to produce goods.
Cost of Goods
What is a communist economy?
This economic system features government ownership of the means of production and distribution.
What is Non-price Competition?
This type of competition focuses on factors like quality, special features, and customer service rather than price.
This is the formula used to calculate Net Profit
Gross Profit - Operating Expense = Net Profit
What is risk?
Profit is the monetary reward a business owner receives for taking this "R-word" when investing.
What are Operating Expenses?
These are the costs involved in the daily running of a business, such as rent, utilities, and wages.
What is the Sherman Antitrust Act?
This 1890 legislation was the first federal act to outlaw monopolistic business practices.
Using rebates, coupons, or price matching to attract customers is known as this.
Price Competition
What is Gross Profit?
A business owner uses this specific profit calculation to determine if a product is worth the cost of production.
What is income?
This term refers to the total money that flows into a business from the sale of goods and services.
What is Net Profit?
This bottom line figure is the most accurate measure of a business's financial health, found by subtracting all expenses from gross profit.
What is an Oligopoly?
A market structure where a few large sellers dominate the industry, such as the automobile or airline industry.
Keeps prices down and improves product quality
A primary reason why competition is encouraged in a private enterprise system.
Businesses are usually more interested in this type of profit because it shows how much extra money they can actually keep.
Net Profit
Unlike financial profit, this "inner" benefit provides business owners with a sense of serving their community.
satisfaction