We explain what profit is and what profit is in accounting. Also, what does marginal utility, gross and net profit consist of?
What is utility?
In the field of economics, we speak of utility to refer to the measure of consumer satisfaction when purchasing a product or service . In other words, it refers to the interest or benefit that is derived from the enjoyment of a good or service, and which therefore determines the extent to which said good is desired (called demand).
In this way, the greater the utility of a good or service, the greater its demand, which added to the rest of the goods and services in a market area (the offer), will allow us to reach important microeconomic conclusions, such as those linked to the consumption behavior.
Normally, the utility of a good is considered to have high levels of subjectivity, since different consumers may evaluate it differently and therefore prefer other brands or goods, according to their tastes, their resources or their cultural conditions. This makes measuring the usefulness of a good or service accurately always a complicated task.
In microeconomic study, however, utility is usually represented graphically as a function of the intersection between utility (y-axis) and quantity of the good consumed (x-axis).
This function ascends evenly to a point considered the point of maximum utilitywhich varies depending on the good and market segment, but from which the utility remains stable, since no more of the good or service is consumed: the consumer's satisfaction can no longer increase at all, since the need is fully covered .
Utility in accounting
In the accounting field, the utility It is understood as a synonym for profit or difference is the figure resulting from the difference between the profits obtained by a business or an economic activity, and all the expenses incurred during the process.
That is, for accounting, profit is the result of discounting production expenses from income: if the final figure is positive, it will be profits; If it is not, they will be losses.
marginal utility
Marginal utility is a concept linked to the decrease in satisfaction provided by a good or service as it is consumed in greater quantities. This is, as we said before, that the increase in satisfaction provided by consumption increases up to a certain point, after which it decreases: that is the saturation point or point of maximum utility.
According to this, marginal utility is distinguished from total utility in that while the latter increases linearly, that is, it increases because the consumer buys more goods, marginal utility, directly linked to the satisfaction provided, increases to a certain point and then decreases if you continue to consume .
Let's take an example: a child eats candy at a party, taking them from a container in which there are many. The first candy gives a utility of 1 in both lines, the second 2 and so on until the saturation point (let's assume 5). So, as total utility continues to increase to 6, marginal utility will remain at 5, and with the next candy it will decrease to 4, even though total utility increases to 7.
Gross and net profit
Gross profit and net profit are accounting concepts, which differ in specific details of their calculation. The first refers to the difference between the total cash sales of an item or a group of items in a given time, and the total cost of its production and distribution during the same period.
Instead, Net profit refers to the profit resulting after accounting for non-operating expenses and income. such as taxes or the legal reserve. This profit is, ultimately, what is effectively distributed to the partners of the company, that is, the profit.
