econ 1 lecture 4

econ 1 lecture 4 - FIRMS AS PROFIT MAXIMIZERS Chapter 7...

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FIRMS AS PROFIT MAXIMIZERS Chapter 7 (pp. 160-73) Concept applies only to for profit firms in the private sector ; thus excluding all public firms, and all private non-profit firms----public and private universities, arts organizations, many hospitals, charitable organizations, religious organizations…. . Otherwise, All firms are assumed to have one dominant goal. .making as much money ( PROFIT REALLY ) as possible…. .How this identical behavior has differential impact in the market place will be a function of the particular environment ( MARKET STRUCTURE ) in which the firm operates. 1. CONCEPT OF PROFIT A. THE USUAL ( ACCOUNTING PROFIT ) Which typically comes from the firms profit and loss statement….Simply the difference between gross receipts and expenditures. These profits are often defined as BEFORE AND AFTER TAXE profits B. THE UNUSUAL (THE ECONOMIST’S VERSION) WHICH INCLUDES IMPLICIT (OR OPPORTUNITY) COSTS………. what you could have done with the time, money and resources that went into the business in question. C. WHY PROFITS AT ALL??? Standard text book answer Î RISK AND INNOVATION MARXIST NOTION VERY DIFFERENT ……Comes solely out of the ownership function which allows the owner to exploit the worker, that is to take a portion of the labor effort that rightfully belongs to the worker (while the risk is reduced via the efforts of government…. .in reality pretty hard to eliminate all risk…question ultimately becomes source of profits….i.e.,
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econ 1 lecture 4 - FIRMS AS PROFIT MAXIMIZERS Chapter 7...

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