To understand a firms revenues, we first need to understand whether the firm is a price taker (take the price set by the market) or a price maker (they have some market power to set its own price).

Once we understand this, we can understand the price the firm will receive for its goods and therefore the total revenue it will receive (Price x Quantity sold). We can also calculate the additional revenue the firm will receive for selling one additional unit of a good (Marginal Revenue). 

It is important here to make sure we do not mix up profits and revenues. Revenue is the money the firm receives for selling a product. Profit is the amount of money made by the firm by subtracting the costs of production from the revenues. This is explained in more detail below. 

Economic profits differ slightly from accounting profits. This is because in economics, when we consider costs, we look at both explicit costs and implicit costs (opportunity cost). 

Therefore, when a firm's revenues equal its costs, this is considered Normal Economic Profits. This is because the firm is covering both it's costs of production and its forgone opportunities.  

If a firm's revenues are greater than its costs, we consider these Abnormal Profits. And if the firm's costs are greater than its revenues, then the firm is making a loss. In order to understand what level the firm should produce at to maximise its profits or minimise its loss, we look for the MC=MR level of output. The video will look at how we determine the profits/loss of a firm in more detail.