An asset that perpetually generates a stream of cash

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An asset that perpetually generates a stream of cash flows (CFi) at the end of each period is called a perpetuity. Firm Valuation and Profit Maximization The value of a firm equals the present value of current and future profits (cash flows). Control Variables Output, price, product quality, advertising, R&D Marginal Benefits (MB) Change in total benefits arising from a change in the control variable, Q Marginal Cost (MC) Change in total costs arising from a change in the control variable, Q Market Demand Curve Shows the amount of a good that will be purchased at alternative prices, holding other factors constant. Determinants of Demand Income (normal or inferior goods) Prices of related goods (substitutes and complements) Advertising and consumer tastes Population Consumer Expectation Market Supply Curve Shows the amount of a good that will be produced at alternative prices. Supply Shifters Input Prices Technology or gov't regulation Number of firms (entry, exit) Substitutes in production Taxes (excise, Ad valorem tax) Producer expectations Consumer Surplus Below the demand curve Producer Surplus Above the supply curve Shortage
When price is too low. Surplus When price is too high. Price Ceiling The maximum legal price that can be charged. Cause shortages. Placed below market equilibrium. Price Floor The minimum legal price that can be charged. Cause surplus. Placed above market equilibrium. Full Economic Price The dollar amount paid to a firm under a price ceiling, plus the non-pecuniary price. Elasticity Concept How responsive is variable "G" to a change in variable "S" Factors Affecting Own Price Elasticity Available Substitutes (more available = more elastic) Time (short-term = inelastic) Expenditure Share (less expensive = inelastic) Elastic Increase (a decrease) in price leads to a decrease (an increase) in total revenue. Inelastic Increase (a decrease) in price leads to an increase (a decrease) in total revenue. Unit Elastic Total revenue is maximized at the point where demand is unitary elastic. economic models simply the real world by ignoring minor details. Corporation and limited liability company Under which form(s) of business organization are owners not responsible for the company's debt if the company goes bankrupt?
An ____ cost is defined as the return from the best-alternative use of a resource. does not measure; includes Accounting cost ____ depreciation as the change in market value of the asset and ____ the wages paid workers.
Using opportunity cost rather than accounting cost enables managers to make more profitable decisions. 3 units of the action because that is the action that sets the marginal benefit equal to the marginal cost. The table on the right shows the marginal benefit and marginal cost of an action. Using marginal analysis, managers should undertake 1 $600 $100 2 $500 $200 3 $400 $400
4 $300 $1,100 a fall in the price of car tires According to the law of demand, ____ increases the quantity of tires demanded.

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