We explain what profit is and what profit is in accounting. Also, what is marginal utility, gross and net utility?
What is utility?
In the field of economy, we speak of utility to refer to the satisfaction measure of the consumer 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 a service, and that therefore determines the extent to which said good is desired (calleddemand).
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 of a market area (theoffer), will make it possible to reach important microeconomic conclusions, such as those related toconsumer behavior.
Normally, the usefulness of a good is considered to have high levels of subjectivity, since different consumers can 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 difficult task.
In the microeconomic study, however, utility is usually represented graphically as a product function of the intersection between utility (y-axis) and quantity of the good consumed (x-axis).
This function rises evenly to a point considered thepoint of maximum utility, which varies according to good and market segment, but from which the utility remains stable, since the good or service is no longer consumed: consumer satisfaction can no longer increase at all, since the need is fully covered .
Accounting profit
In the accounting field, profit is understood as synonymous from gain or difference, is the figure product of the difference between the profits obtained by a business or an economic activity, and all the expenses incurred during the process.
That is, for the accounting, the utility is the result of discounting the income production expenses: if the final figure is positive, it will be profit; 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 the consumption it increases to a certain point, after which it decreases: that is the saturation point or point of maximum utility.
According to this, the marginal utility is distinguished from the total in that while the latter increases linearly, that is, it increases because the consumer buys more goods, the marginal utility, directly linked to the satisfaction provided, increases to a certain point and then decreases if it is keep using.
Let's take an example: a child eats candies at a party, taking them from a container in which there are many.The first candy gives a utility of 1 in both rows, the second of 2 and so on until the saturation point (let's say 5). So while 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, differing in specific details of their calculation. The first refers to the difference between the total cash sales of an item or a group of them in a given time, and the total cost of its production and distribution during the same period.
On the other hand, net income refers to the resulting profit after accounting for the expenses and non-operating income, such as taxes or legal reserve. This utility is, after all, the one that is effectively distributed to the members of the business, that is, the profit.