Relationship Between Output and Revenue

Output is the amount of a good produced; revenue is the amount of income made from sales minus all business expenses.

Learning Objective

Describe the relationship between output and revenue

Key Points

In economics, output is defined as the quantity of goods or services produce in a certain period of time by a firm, industry, or country. Output can be consumed or used for further production.
Revenue, also known as turnover, is the income that a company receives from normal business activities, usually from the sale of goods and services. Companies can also receive revenue from interest, royalties, and other fees.
The performance of a company is determined by how its asset inflows (revenues) compare with its asset outflows (expenses). Revenue is a direct indication of earning quality.

Terms

revenue
The total income received from a given source.
output
Production; quantity produced, created, or completed.

Full Text

Output

In economics, output is defined as the quantity of goods or services produced in a certain period of time by a firm, industry, or country. Output can be consumed or used for further production. Output is important on a business and national scale because it is output, not large sums of money, that makes a company or country wealthy.

There are many factors that influence the level of output including changes in labor, capital, and the efficiency of the factors of production. Anything that causes one of the factors to increase or decrease will change the output in the same manner.

Revenue

Revenue, also known as turnover, is the income that a company receives from normal business activities, usually from the sale of goods and services. Revenue is the money that is made as a result of output, or amount of goods produced. Companies can also receive revenue from interest, royalties, and other fees.

Revenue can refer to general business income, but it can also refer to the amount of money made during a specific time period. When companies produce a certain quantity of a good (output), the revenue is the amount of income made from sales during a set time period.

Businesses analyze revenue in their financial statements. The performance of a company is determined by how its asset inflows (revenues) compare with its asset outflows (expenses). Revenue is an important financial indiator, though it is important to note that companies are profit maximizers, not revenue maximizers.

Importance of Output and Revenue

In order for a company or firm to be successful, it must focus on both the output and revenue. The quantity of goods produced must meet public demand, but the company must also be able to sell those goods in order to generate revenue. The production of goods carries a cost, so companies want to find a level of output that maximizes profit, not revenue .

Output and Revenue

Krispy Kreme's output is donuts. It generates revenue by selling its output. It is however, a profit maximizer, not an output or revenue maximizer.

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