Cost, Price and Profit

Cost refers to the amount paid to produce a good or service. The cost represents the sum of the value of the inputs in production – land, labour, capital and enterprise.

Price refers to the amount of money that consumers have to give up to acquire a good or service.  Price is set by the market not the manufacturer!

Profit is the difference between the price and the cost.

Profit = Price – Cost


The image below shows how the the costs involved in making a chocolate bar and the profit the business made. 

The cost of the product is the sum of the cost of the raw materials like the cocoa, sugar, milk, honey, hazelnuts, flavouring and colour that are used to make the chocolate bar, the cost of the capital required to make the product like the machinery, equipment used in the manufacture of the bar as well as all the vehicles and so on involved in the distribution of the finished product and the offices and administration buildings that support the business and the cost of the labor  required to make the candy.

The price of this chocolate bar is the amount of money that I have to give up to buy. In this example, this is £1.30

The profit is the difference between the price and the cost.  In this case it is 10p.

Profit = Price – Cost or 1.30 = 1.20 – .10

 Note: Example was modified from the example found at here

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