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Econ 1 - Lecture Notes - stock holders/share holders...

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11/07 Private and Social Costs of Doing Business Cost of production – all costs are opportunity costs Relevant levels of costs 1) private costs – costs paid by owner of business 2) external costs – paid by those other than the business owners 3) total social costs – private costs and external costs put together Explicit and Implicit (private) Costs explicit costs – actual dollar payment for resources employed (goods, hired workers). These are kept track of in their book keeping (accounting records) implicit costs – owned as well as used by the firm 11/09 Ownership single-owner proprietorship – small firm has one owner, person usually is owner, manager, and worker as well. Profit=proprietor’s income. Small. To expand it uses loans from banks partnership – two or more owners, profit=partnership income. medium sized. To expand it either gets bank loans or accepts more partners corporation – person before the law, treated as if it were an individual. Owners are the
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Unformatted text preview: stock holders/share holders. profit=corporate profit. • Corporation profit tax – special tax for corporations • Extra profit is after tax corporation profit and may be paid as dividend • Some is kept by the corporation as “retained earnings) • People can sue single-owners, partnerships, and corporations, but they cannot sue the stock holders of corporation • Stock holders can receive dividend checks and the shares can raise in value Profit • Accounting = total revenue - explicit costs • Pure Economic = “TR” – (explicit and implicit cost) they mean economic profit unless they specify otherwise • Normal = implicit cost (amount of money you need to earn to stay in the business) • Relationship- economic = accounting – normal • You break even when economic profit is zero, you have income though...
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