Chapters 7-10 Flashcards
What is the goal of business?
Maximize profit
What are the three types of businesses?
Sole proprietor, partnership, and corporation
What is a sole proprietorship?
One owner with limited ability to raise capital
What is a partnership?
Multiple owners with limited ability to raise capital?
What is a corporation?
Large brand with lots of ways to raise capital
What is the formula for profit?
Total revenue minus total costs
What is the formula for total revenue?
Price times quantity
What is the formula for total costs?
Implicit costs plus explicit costs
What is an explicit cost?
Expenses paid directly to someone else
What is an implicit cost?
Opportunity cost of using resources
What is accounting profit?
Total revenue minus explicit costs
What is economic profit?
Total revenue minus explicit costs, minus implicit costs.
What does positive economic profit mean?
Owner is better off running business
What does negative economic profit mean?
Owner is worse off running business
What does zero economic profit mean?
The owner is indifferent about owning the business
