Chapter 1: Managers, Profits and Markets Flashcards
accounting profit
The difference between total revenue and explicit costs.
business practices or tactics
Routine business decisions managers must make to earn the greatest profit under the prevailing market conditions facing the firm.
economic profit
The difference between total revenue and total economic cost.
equity capital
Money provided to businesses by the owners
explicit costs
Monetary opportunity costs of using market-supplied resources (while implicit costs are non-monetary opportunity costs of using owner-supplied resource).
globalization of markets
Economic integration of markets located in nations around the world.
implicit costs
Non-monetary opportunity costs of using owner-supplied resource (while explicit costs are monetary opportunity costs of using market-supplied resources).
industrial organization
Branch of microeconomics focusing on the behavior and structure of firms and industries.
market
Any arrangement through which buyers and sellers exchange anything of value.
market power
A firm’s ability to raise price without losing all sales.
market structure
Market characteristics that determine the economic environment in which a firm operates.
market-supplied resources
Resources owned by others and hired, rented, or leased in resource markets.
microecomics
The study of individual behavior of consumers, business firms, and markets, and it contributes to our understanding of business practices and tactics.
moral hazard
Exists when either party to an agreement has an incentive not to abide by all provisions of the agreement and one party cannot cost effectively monitor the agreement.
opportunity cost
What a firm’s owners give up to use resources to produce goods or services
owner-supplied resources
Resources owned and used by a firm.
price-setting firm
A firm that can raise its price without losing all of its sales.
price-taker
A firm that cannot set the price of the product it sells, since price is determined strictly by the market forces of demand and supply.
principal-agent problem
The conflict that arises when the goals of the management (the agent) do not match the goals of the owner (the principal).
risk premium
An increase in the discount rate to compensate investors for uncertainty about future profits.
strategic decisions
Business actions taken to alter market conditions and behavior of rivals in ways that increase and/or protect the strategic firm’s profit.
total economic cost
Sum of opportunity costs of market-supplied resources plus opportunity costs of owner-supplied resources.
transaction costs
Costs of making a transaction happen, other than the price of the good or service itself.
value of a firm
The price for which the firm can be sold, which equals the present value of future profits.
