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1Lecture - π = Σ(Tri – Tci(1 i)^i = the definition of...

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Introduction 00:51 Firm: the job of the firm is to hire resources and turn them into goods and services. The  goal of the firm is to maximize profits Profit: The differeance of revenue and costs when it comes to decision making about  financial structure of firms, they don’t look at the profits of the firm, base decisions on  long term profit maximization of the firm. (Stocks)  Have to find the cash flow of the firms (long term) then decide if the firm is in good  condition or poor. Profit = π = total revenue – total costs = TR-TC Π PV of expected future profits =  π 1/(1+i)… PV of 
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Unformatted text preview: π = Σ (Tri – Tci)/(1+i)^i = the definition of profit with managerial decision making Accounting profit vs. Economic Profit Decision making is based on econ profit not acct Explicit cost: money paid, require direct payments (rent, wages) Implicit cost: opportunity cost, do not require payment (Use your own house as an office) TR (sales rev) – (explicit cost/acct profit) TR (sales rev) – (imp cost/econ profit) Total cost = imp cost + exp cost (opportunity cost) Why do we need profit? Innovations allow firms to exist (R&D) Rist of uncertainty Monopoly 00:51 00:51...
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