Chapter 12 (1) Flashcards

1
Q

Bottom Line

A

profit = the central goal of business

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2
Q

TRIPLE BOTTOM LINE

A

they value not only dollars but also social / environmental impacts

–> Still need profit to survive

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3
Q

Profit EQ

A

Profit = Total revenue – Total cost

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4
Q

TOTAL REVENUE

A

is the amount that a firm receives from the sale of goods and services

–>calculated as the quantity sold multiplied by the price paid for each unit

–> Total revenue = Quantity x Price = (Q1xP1) + (Q2xP2) + … + (QnxPn)

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5
Q

TOTAL COST

A

amount that a firm pays for inputs used to produce goods or services.

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6
Q

TOTAL COST EQ

A

Total costs = Fixed costs + Variable costs

–> Firm’s fixed cost = constant as quantity increases; variable cost rises w/ each additional unit produced

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7
Q

FIXED COSTS

A

are costs that do not depend on the quantity of output produced.

–>Can be a one-time, upfront payments before production can begin (e.g., like buying equipment)

–>Ongoing payments, like monthly rents.

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8
Q

VARIABLE COSTS

A

are those that depend on the quantity of output produced.

–>Includes raw materials as well as (many) labour costs

  • -> if a firm = produces nothing–if it stops production–then its variable cost is zero (dependent)
  • But it is still stuck w/ its fixed costs
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9
Q

2 components of a firm’s opportunity cost of operation

A
    1. composed of the fixed and variable costs (anything related to cost)
  1. composed of forgone opportunities
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10
Q

EXPLICIT COSTS

A

which require a firm to spend money

–> Example: rent on a building, labour, materials, and machines–all of these require the firm to pay someone else in order to acquire them

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11
Q

IMPLICIT COSTS

A

–opportunities that could have generated revenue if the firm had invested its resources in another way.

–> any input used in a business–warehouses, equipment, cash–could alternatively be used to generate income some other way

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12
Q

To properly account for the total costs incurred by a firm

A

total cost includes both types of costs (implicit & explicit).

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13
Q

When companies report their profits, they provide…?

A

accounting profits

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14
Q

ACCOUNTING PROFIT EQ

A

Accounting profit = Total revenue – Explicit costs

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15
Q

Economic profit EQ

A

Economic profit = Accounting profit – Implicit costs

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