Introducing supply decisions Flashcards
What’s a sole trader?
owned by an individual; entitled to income and responsible for losses
e.g corner shop
What’s a partnership?
Jointly owned by two or more people
unlimited liability
e.g John Lewis, law and accountancy firms
What is a company?
. Ownership divided among shareholders-private or public
. legal entitlement to produce and trade
. limited liability
. shares of public companies resold on the stock exchange
e.g plcs= shell, apple
What is a stock account compared to a flow account?
. Stocks are measured at a point in time
. Flows are corresponding measures during a period of time
What is revenue?
the amount a firm earns by selling goods and services in a given period
R=P X Q for one time of good
What are costs?
the expenses incurred in producing goods and services during the period
c=ac x q
What are profits?
the excess of revenues over costs
profit = R - C
What is cash flow?
the net amount of money received (by the firm) during the accounting period
What is physical capital?
machinery, equipment and buildings used in production
What is depreciation?
the loss in value of a capital good during the accounting period
What are inventories?
goods held in stock by the firm for future sales
What are assets and liabilities?
. Assets
what the firm owns
. Liabilities
what the firm owes
What is a firms net worth?
Assets - liabilities
What is a firms balance sheet?
lists a firm’s assets and liabilities at a point in time
What is an accounting cost?
Actual payments made by a firm in a period
What is an opportunity cost?
Amount lost by not using a resource in its best alternative use. Economists include this in a firms total costs but accountants do not
What is an economic cost?
Relates to all the costs incurred by the firm. They include the opportunity costs of all resources used in production.
What is a supernormal profit?
Supernormal profit is the pure profit accruing to the owners after allowing for all economic costs.
A firm sells carpets for £10m a year.
The cost of buying in materials is £5m.
Its labour costs £2m a year.
It also employs £10 m of capital, bearing 10% interest and 10% depreciation a year.
What (if anything) is the firm’s profit and supernormal profit?
profit each year = £3m
supernromal profit each year= £1m
What is corporate finance?
How firms finance their activities?
What differnet types of corporate fiance are there?
1) Borrowing from banks
2) Borrowing by selling pieces of paper (corporate bonds) whereby the firm promises to pay interest for a specified period and then repay the debt
3) Using the stock market for selling new shares in the firm
What is the UK and US system compared top the German system?
. US and the UK have market-based or outsider systems, relying on active stock markets trading existing shares and debt, and available to issue new shares and debt
. Germany have an insider system. Companies got long-term loans from banks, who then sat on company boards with access to inside information about how the firm was doing
What will a profit maximising firms production decision be?
For any output level, the firm attempts to minimize costs which in turn hopefully increases profit.
What is marginal cost and marginal revenue?
Marginal cost (MC) is the rise in total cost if output increases by 1 unit. Marginal revenue (MR) is the rise in total revenue if output increases by 1 unit.
