The basic difference between Total cost and total revenue is that the total cost includes the total expenditure incurred on the production of a commodity whereas total revenue refers to the money received from selling that commodity.
To know the difference between these two, we must clear the meaning of these terms:
Meaning of Total Cost:-
It refers to the total cost of all the resources used to produce any particular output. For the short term, we can classify the cost into fixed and variable-like factors.
Therefore,
In this period, the total cost can be expressed as:
TC = TFC + TVC
Here,
TC denotes Total Cost
TFC denotes the total fixed costs
TVC denotes the total variable costs
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Therefore, it can be written as:
Total Cost = (Total Fixed Costs) + (Total Variable Costs)
Here, the total fixed costs refer to the expenditure incurred on Fixed factors of production and Total variable costs refer to the total expenditure incurred on variable factors of production.
Meaning of Total Revenue:-
It refers to the total money receipts of a firm from the sale of a given output. TR can be calculated as:
TR = Price × Quantity
or
TR = AR × Q
Here,
TR represents total revenue
AR represents revenue per unit
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Q represents total output
Thus, We can say that TR refers to the money receipts of a firm from the sale of its total output and can be estimated as:
TR = AR × Q
In the words of Dooley,
“Total Revenue is the sum of all sales receipts or income of a firm.”
Chart of Difference between Total Cost and Total Revenue :
| Basis of Difference | Total Cost | Total Revenue |
| Meaning | It refers to the expenditure incurred by the producer on the production of a commodity. | It refers to the money received from selling the produced commodity. |
|
Components |
Total cost comprises fixed cost, variable cost, marginal cost, and average cost in the short run. | Total Revenue comprises Marginal revenue and Average Revenue. |
| Behaviour | It increases with an increase in production or output. | It increases with an increase in sales. |
|
Represents |
It represents the total cost of producing a specific output. | Total revenue represents the total money receipts from the sale of the output over a specific period of time. |
|
Nature |
TC is regarded as the expenditure for any business enterprise. | TR is regarded as the income for any business enterprise. |
|
Calculation |
It can be calculated as: Total cost = Fixed Cost + Variable Cost |
It can be calculated as: Total revenue = Price × Quantity. |
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Conclusion:
Thus, both terms stand for every business enterprise. The thing which makes these both distinct is the money flow over a period of time and with the production & sales level. However, the difference between the values of both these terms is termed as profit for a business enterprise.
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