Econ 1 - Lecture Notes

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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