Econ defs (chapter 1)
Terms
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- business profit
- Residual of sales revenue minus the explicit accounting costs of doing business
- compensatory profit theory
- Above-normal rates of return that reward efficiency
- economic profit
- Business profit minus the implicit costs of capital and any other owner-provided inputs
- expected value maximization
- Optimization of profits in light of uncertainty and the time value of money
- frictional profit theory
- Abnormal profits observed following unanticipated changes in demand or cost conditions
- innovation profit theory
- Above-normal profits that follow successful invention or modernization
- managerial economics
- Applies economic tools and techniques to business and administrative decision making
- monopoly profit theory
- Above-normal profits caused by barriers to entry that limit competition
- normal rate of return
- Average profit necessary to attract and retain investment
- optimize
- Seek the best solution
- present value
- Worth in current dollars
- profit margin
- Accounting net income divided by sales
- return on stockholders’ equity
- Accounting net income divided by the book value of total assets minus total liabilities
- satisfice
- Seek satisfactory rather than optimal results
- theory of the firm
- Basic model of business
- value of the firm
- Present value of the firm’s expected future net cash flows