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Unformatted text preview: Chapter 19: Profit Maximization For now, assume there is a competitive market (prices are outside the control of sellers.) 19.1) Profits a) Profits: revenues-cost. Let x i are the inputs, w i the price of inputs, y i the outputs, p i the price of outputs. Then: Profits==i=1npiyi-i=1mwixi b) Value of all inputs and outputs determined by opportunity costs. 19.2) The Organization of Firms a) Proprietorship : firm owned by a single individual. b) Partnership : firm owned by two or more individuals. c) Corporation : Firm owned by several individuals but has existence separate from owners. 19.3) Profits and Stock Market Values a) Values flow of costs and flow of revenues. b) Present value of the firm : Firms present flow of future profits. c) Stock market : Where shares of ownership are bought. d) Prices of shares represent present value of stream of dividends that people expect to retain....
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- Fall '06