Questions tagged [profits]

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If current inflation is (probably) not due to corporate pricing power, then why are profit margins currently so high?

A recent IGM Forum at Chicago Booth survey of economists indicated that few economists think that corporate pricing power is behind current inflation. More specifically, only 7% agreed and 65% ...
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4 votes
1 answer
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Bid-rent function in The Microgeography of Housing Supply

I came across the paper "The Microgeography of Housing Supply" (Baum-Snow, 2020)(https://luhan2.weebly.com/uploads/9/6/0/8/96080580/housing_supply_julyb2020.pdf) and I must admit that I do ...
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In the real world, do companies try to maximize return via maximizing profits or maximizing profits/costs (or neither)?

Suppose I buy $s$ shares of a stock at price $p_0$ and then later sell at price $p_t$. The initial and final values of my investment are then $I_0=sp_0$ and $I_t=sp_t$ respectively. The return is then ...
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8 votes
1 answer
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Perfect Competition, Zero profit rule and General Equilibrium

I'm reading a book where the definition of an equilibrium for a competitive economy is given as in Kenneth J. Arrow; Gerard Debreu (1954) Existence of an Equilibrium for a Competitive Economy ...
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ECONOMIC VS ACCOUNTIGN PROFIT

Been trying to calculate economic vs accounting profit as per below but I don't seem to get the correct answer. Any help will be appreciated. John Smith previously earned £ 10,000 a year in employment ...
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1 vote
1 answer
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Profit share determination in PKE

To my understanding, post-keynesian economics generally see price as a product of profits, wage expenses, interest payments, and inventory costs. To express it mathematically: \begin{gather*} p\ =\ \...
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1 vote
1 answer
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Is Google Street View profitable?

For many years, Google offers this amazing service called Street View, where they show us full panorama photos taken by special cars that drive on a number of roads, even the most remote ones. It's ...
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0 votes
2 answers
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Percentage increase of the price of a good if there is a pay raise

I have a question about the percentage increase of the price of a good if there is a pay raise given to the firm's workers. I am reading economics for my own personal interest so I apologise if there ...
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Is there a formal definition of opportunity costs, economic costs, and/or economic profits?

[Edited to remove a mistake in a definition and some typos.] According to various econ textbooks (e.g. this one), there is a fundamental distinction between economic profit and accounting profit: (i) ...
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Accounting profit in macroeconomics as compared to microeconomics

In Macroeconomics (2019) on p.103, it is argued that the reason there exists profit in an economy is that most firms own rather than rent capital. Thus: But, Microeconomics assumes a different ...
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3 votes
2 answers
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Why does a firm make profit in a perfect competition market

I'm solving a problem about $n=180$ firms in a perfect competition market, where demand is given by $D(p)=100-5p$. A firm's cost function is $c(q_i) = 2 \cdot (q_i)^2$. Using $p = c'(q_i)$ and the ...
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4 votes
2 answers
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What's the logic behind dividing rental price of capital and wage rate by price level?

I've just started to learn macroeconomics and I think even the teachers can't get what's the price level and why we divide by it in order to find for example real economic profits. Textbook says "...
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1 vote
3 answers
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Why don't governments ban businesses from passing tax costs onto their customers?

So, after a bit of discussion in the comments of this question on the Politics SE, I figured I'd post it here: One of the arguments against taxing large businesses is that they'll just pass the costs ...
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9 votes
10 answers
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Why don't profitable firms use previous profits to offset current loss

It is being reported that EasyJet expects a heavy loss in the current year due to Covid-19 pandemic. The report states that The airline said it expected to sink into a pre-tax loss of between £815m ...
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What are the pros and cons of a "long stock, short call" position compared to a "short put"?

The profit-loss diagram for the "long stock, short call" position and the "short put" position are almost exactly the same, except that for the former, you may be able to profit ...
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1 vote
1 answer
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What does Smith mean by "price of work" in this context?

I've read these excerpts from The Wealth of Nations multiple times: In reality high profits tend much more to raise the price of work than high wages In raising the price of commodities the rise of ...
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4 votes
2 answers
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Why do different product-markets record different rates of return if the assumption of competitive markets hold?

I'm a new economics student, and have become fascinated by the field of Industrial Organization. To that end, I'm reading through the Carlton and Perloff Modern Industrial Organization text book. In ...
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4 votes
1 answer
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Average ability conditioning on having accepted an offer

There is a continuum of workers between 0 and 1. These have ability $\alpha\sim U[0,2]$. A firm offers them a salary $v$ and has profits $$ \pi = (\rho \alpha-v) n(v) $$ where $n(v)$ is the fraction ...
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5 votes
1 answer
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Has it truly been established that the restaurant industry operates on thin margins?

For as long as I can remember I've constantly seen the truism that restaurants operate on "razor sharp margins" repeated endlessly by the media, the restaurant industry, and the average joe. This ...
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break even time

How can we know a company's break even time? I know how to calculate the break even point. I am also assuming that the lower your break even point, the less time it may take you to reach it. ...
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3 votes
3 answers
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How much average value does 1 working hour produce? ( are there reliable statistics?)

This is a non-economist's question. As a philosophy teacher ( in a french high school) , I have to study the theme of " labour" in class. I'm looking for factual data in order to assess the ...
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0 votes
1 answer
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How to prove that profit function is convex in price (with smaller price)?

According to this site, if output price increases from $p*$ to $p'$ and factor prices remain constant, then a new production bundle chosen must yield at least the same amount of profits as the old ...
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3 answers
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Opportunity profits vs. opportunity costs

Having learned that Opportunity costs = the costs for avoided profits are a well established and quite useful economic concept, I wonder how its counterpart is officially called and investigated: ...
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0 votes
0 answers
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What happens to net assets in case of increasing NPAs(Non-Performing assets)?

The bank's profit is measured as Return on Assets which is the ratio of Bank’s net profits and Net assets. In case of increasing NPAs, the bank's net profits will decrease, but what will happen to ...
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1 answer
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Are sales (discounts) an investment or a loss?

Are sales (discounts) during a promotional period considered an investment by the company/manufacturer to drag in more customers? Or a loss that wouldn't be paid back anytime in the future, but also ...
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0 votes
0 answers
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What is Adjusted Nett Gross?

Can anybody explain to me Nett Gross, Adjusted Nett Gross and Total Nett Gross through an example? I am new to this subject and from an engineering background. This knowledge is required for my ...
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Why are there not more competitive nonprofits?

For example, when I go to the grocery, and peruse the various goods for sale on the shelves, there is at least a 99.9% chance that any given product is produced for-profit. Even "Newman's Own", which ...
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If every company in the economy earns zero economic profit, can they contribute to real economic growth?

I understand that zero economic profit does not equal to zero accounting profit. It means that every resource that goes into the production is perfectly utilized considering alternative uses in the ...
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please help describe a) what exactly is the Paradox of Profits , b) what is the argument of these papers exactly

here are 3 papers that discuss it. it seems to me that the paradox is that, supposing a closed economy has money M raised through bank loans, then, while that economy can create goods and services and ...
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Why'd a company issue unpaid shares, to acquire or merge companies?

Under the heading Why would a company issue unpaid shares? by Johnathan Korchak Although unpaid and partly paid shares are far less common than fully paid shares, there are a number of reasons why a ...
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0 votes
1 answer
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How has my profit margin risen?

I quote the first few paras. of this Reddit comment: [1.] Imagine you had a business selling lollipops at school. Since you can buy a bag of 100 for \$10, you can sell them for 25¢ a piece for a ...
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0 votes
1 answer
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Can implicit costs be negative?

I think that conventionally implicit costs are positive but if for example we consider a negative interest rate as an implicit cost, the implicit cost would be negative. Is this true? Can implicit ...
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2 answers
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In perfect competition, why is there economic loss if marginal cost > marginal revenue?

Here's a graph for reference: In the left graph, I read from a book (CFA L1 notes) that At any output above the quantity where $MR = MC$, the firm will be generating losses on its marginal ...
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3 votes
1 answer
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The relationship between gross profit and tax

I tried to do following question but I am not sure about my solution. Please tell me your opinions Since gross profit is strictly concave, I can say that $R’’(y)-C’’(y) <0$ Now I maximize the net ...
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What famous company that turned a loss at its first year(s) but then became profitable? [closed]

In a discussion with a friend, he mentioned that a new company may fail to gain profits for several years before it becomes profitable. I asked him for examples but he did not know any. I though of ...
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1 vote
1 answer
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Why is investment not a cost in firms profit functions?

In all textbooks I've seen profits is written as: $$\pi=py-wL-rK$$ It is evident here that w and r are operational costs. But unless there is no depreciation and the level of capital is to remain ...
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0 votes
1 answer
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When big companies invest on a new idea/product?

I am graduated in AI field. I love robotics and intelligent systems, so I worked on some new products by myself at home that have new ideas and are interesting(at least me and my friends think!). I ...
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0 votes
1 answer
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Why wasn't the wage of the entrepreneur included in explicit costs?

I was solving an economic problem (I was calculating explicit and implicit costs) and noticed one interesting thing: In the said problem, the entrepreneur set himself the wage of 10 000 rubles AND in ...
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Capital mobility across industries and equalization of profit rates

What are some restrictions to the competitive restoration of proportionality across industries in regards to capital mobility? What is generally impeding the free flow of capital from less profitable ...
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1 vote
2 answers
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Marginal productivity, wages, and profits in neoclassical economics

In neoclassical economics a worker is paid the marginal product of what they produce. If this is true then what is the source of profits?
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1 answer
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Why is ATC tangent to Demand in a Monopolistic or Mopolistically Competitive Firm Making Zero Profit?

I understand that the Average Total Cost is equivalent to demand in a zero profiting monopoly or monopolistically competitive firm in order for there to be zero profits (when ATC = P at a given ...
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1 vote
2 answers
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USA seigniorage revenue

I came to know about the term seigniorage meaning the difference between the value of money and the cost to produce it. I also read somewhere that many countries use seigniorage as a means of revenue ...
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-2 votes
1 answer
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The difference between making money by profit and by earning it [closed]

Suppose there were no taxes (which only makes things more complicated) and suppose I ask ten people if they want to get money by cleaning up houses for 8 euros per hour. They agree. Now I on my turn ...
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6 votes
3 answers
104 views

Why does BC Hydro want us to use less power?

I live in British Columbia, Canada, and we have a hydro electric company called BC hydro that supplies our power. They run ads encouraging us to use less power. I have been wondering why they would do ...
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1 vote
0 answers
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Find change in gross profit after price change

How do you solve this question? A company has 3 products. They contribute to 30%, 30% and 40% of sales respectively. They have profit margins of 15%, 30%, and 50% respectively. If the ...
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3 votes
3 answers
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Does the price level in a competitive market have to be at the intersection of the Average Cost curve and the Marginal Cost curve?

I could see that if the price level is say lower than the intersection point , then firms won't be able to operate , but what is wrong with the price level being above the intersection point of the ...
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1 vote
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Is there a simple way to write a model with firms/sectors with different demand elasticities?

I would like to write down a model where there are firms with different demand elasticities: For some firm's total profits increase and decrease a lot with increases and decreases in demand for their ...
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Why does state-owned company so aggressive in making profit?

Take China National Petroleum Corporation(CNPC) as an example, almost 86% of its stock is stated-owned. Its senior managers' promotion are related to the company's profit. And since there are ...
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3 votes
2 answers
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Optimize by MR = MC vs TR = TC

I know that I should optimize production by solving $MR = MC$ with respect to $Q$. But if $TR > TC$, I am making a profit. Why is not enough to just solve $TR = TC$ with respect to $Q$?
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Monopoly Profits [closed]

Have a question: In the town of Johnson, there are 100 identical citizens and one bus company. The bus company is owned by the citizens, each of whom receives 1% of the bus company’s profits. Nobody ...
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