3.3.4- Normal Profits, Supernormal Profits And Losses Flashcards
What is profit?
Money left over from sales after all costs have been paid
What are the objectives a firms can have?
-survival
-market share max
-non commercial objectives (high quality, environmental, ethical)
-personal objectives (satisfaction, autonomy of being self employed, maximise rewards)
When does profit maximisation occur?
MC= MR
What is normal profit?
The return that is sufficient to keep the factors of production
What is super normal profit?
Profit over and above the normal profit
What are the benefits of profit maximisation?
-maximises returns to shareholders
-provides an internal source of funds for investment
-rainy day savings
Why do some firms revenue maximise?
If their goods are perishable
What are some examples of revenue maximising firms?
Bakers, ticket sellers, flower sellers, supermarkets
Where is revenue max?
MR=0
Where is sales max?
AR=AC
What is the benefit of sales max over profit max?
-brand loyalty and brand value
-barrier to entry into the market
-CPU and economies of scale
-more influence in society and the govt
What is profit satisficing?
Due to division of ownership and control , the controllers run the business so can control the information that the shareholders know so they satisfy the shareholders profits so they aren’t replaced at the AGM
What is the evaluation of profit satisficing?
-satisficing is a scale
-reputational risk of being fired
-loyalty to the company
-link between happiness and income
-legal access to corporate info
-impact of tech and ai
-transfer earnings
What is the link between happiness and income?
After $70000 a head there is no noticeable increase in happiness
What are transfer earnings?
What you could earn in the next best alternative job
