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Why don't profitable firms use previous profits to offset current loss

The primary goal of most companies is to make money for its shareholders. They put money in, and they expect to either get dividends, or be able to resell their shares for a higher amount. It's the ...
jcaron's user avatar
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12 votes

Why don't profitable firms use previous profits to offset current loss

Specific case of EasyJet It is impossible to answer whether EasyJet in particular could do something different, without some detailed case study. Just stating that the firm was profitable in past is ...
1muflon1's user avatar
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10 votes

Why don't profitable firms use previous profits to offset current loss

It might make sense to cut the jobs as it looks like they will be operating at reduced capacity. The article does not say that they could not keep on the workers and "smooth" their yearly ...
Giskard's user avatar
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9 votes

Why (neoclassical) economic models have no profits, unlike the real world?

Greg Mankiw's answer: plus extra characters
PatrickT's user avatar
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8 votes
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Perfect Competition, Zero profit rule and General Equilibrium

Parallel to Arrow and Debreu, there is the approach of Lionel McKenzie, in which no ownership is specified and all technology has constant returns to scale. In such a model, firms can make no profit. ...
Michael Greinecker's user avatar
6 votes

What's the logic behind dividing rental price of capital and wage rate by price level?

Price level is the general level of prices in an economy. It is a variable that indicates what is the purchasing power of money (see Blanchard et al. Macroeconomics: a European Perspective). You can ...
1muflon1's user avatar
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5 votes

Why does a firm make profit in a perfect competition market

The first order condition for profits here (with respect to quantity, since firms are price-takers) is $$p - 4q_i = 0 \implies q_i^* = \frac 1 4 p,$$ which is the supply function of its firm. So ...
Alecos Papadopoulos's user avatar
5 votes
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Why does a firm make profit in a perfect competition market

Given your parameters there should be profit. There can be profit even in perfect competition if there is less than infinite firms since as pointed out by Bayesian in his +1 comment when price is ...
1muflon1's user avatar
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4 votes
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If every company in the economy earns zero economic profit, can they contribute to real economic growth?

The standard measure of the size of an economy is total income. Profit is just one type of income (accruing to owners of firms). Wages that accrue to the workers in a firm can increase, which can be ...
ahorn's user avatar
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4 votes
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What famous company that turned a loss at its first year(s) but then became profitable?

It is very common for a company to have a loss (i.e. expenses > revenue) in the first year. Amazon is actually a very good example of that. It’s also a good example of ‘growth before profit’ strategy. ...
Pawel Kam's user avatar
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4 votes

Why is investment not a cost in firms profit functions?

Both in Economics and in Accounting, there is the following fundamental principal: we have to subtract revenues generated in a given time period from costs incurred in the same time period (because ...
Alecos Papadopoulos's user avatar
4 votes
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Why (neoclassical) economic models have no profits, unlike the real world?

Accounting (after tax) profits are net of depreciation and of interest paid on loans, or of any capital/equipment actually rented by the firm. So conceptually, they map to "net returns on own capital"....
Alecos Papadopoulos's user avatar
4 votes

Opportunity profits vs. opportunity costs

Opportunity cost is simply the value not obtained of the highest value alternative. It can be positive or negative; meaning it doesn't really make sense to define the opposite as opportunity profit. ...
Clinical_Coder's user avatar
4 votes
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How much average value does 1 working hour produce? ( are there reliable statistics?)

That is a great question. And it depends (famous economics response to anything). Here are some of the factors on, “how much does 1 hour of work produces”: - Persons education and training level - ...
Mike J's user avatar
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4 votes
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What does Smith mean by "price of work" in this context?

Smith was talking of "the price of work" as meaning the price of economic products bought from the employers and merchants, not the price of labour bought from the workers. "Work" ...
Steve's user avatar
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4 votes

Why don't profitable firms use previous profits to offset current loss

Overall profits are irrelevant to layoffs. What matters are marginal profits from employees. If the marginal profit from retaining employees is negative, then employees should be laid off. Similarly, ...
Acccumulation's user avatar
3 votes

Opportunity profits vs. opportunity costs

First off some terminology: opportunity cost are not necessarily avoided profit. Profit is a term that is used for firms, but opportunity cost does not just apply to firms. Moreover as @clinical coder ...
Maarten Punt's user avatar
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3 votes
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Average ability conditioning on having accepted an offer

If $\alpha \sim U$, then how come there is no expectation in your profit function? The $\alpha$ is unknown and which $\alpha$-types the firm gets depends on salary $v$. This should be reflected in the ...
Bayesian's user avatar
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3 votes
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Has it truly been established that the restaurant industry operates on thin margins?

TLDR: Interesting question, but difficult to answer. The restaurant industry is made up of so many firms and many are small and self-owned. This makes collecting data difficult. The data I did collect ...
Scc33's user avatar
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3 votes

The difference between making money by profit and by earning it

How come they accepted the 8 euro offer if they could have gone to the people who pay 15 euros as well? Could it be that matching the suppliers and the customers has same value? If what you are doing ...
Giskard's user avatar
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3 votes
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Marginal productivity, wages, and profits in neoclassical economics

Recall the profit function. $$\pi=pf(x)-wx$$ where $x$ is a set of inputs, and $w$ is a set of input prices. A firm is profit maximizing when $MC=MR$ or in a competitive case where $MC=p$. If a ...
EconJohn's user avatar
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3 votes

Why don't profitable firms use previous profits to offset current loss

I think an important point of view for this question is also from financial side: The profit made in previous years may not necessarily accessible for the company in form of cash or other assets. In ...
Dayne's user avatar
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3 votes

What's the logic behind dividing rental price of capital and wage rate by price level?

You should interpret $P$ as being the price of some bundle of goods people want to consume. Then if we have some monetary amount (in dollars, euro's or some other monetary unit of account), let's call ...
user18214's user avatar
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3 votes

Is Google Street View profitable?

On profitability: From Investopedia (which is a poor source for economic principles, but hopefully acceptable for news items): ...Google does not report specific figures identifying the financial ...
Giskard's user avatar
  • 29.2k
3 votes

Bid-rent function in The Microgeography of Housing Supply

It's just algebraic rearrangement. Below I suppress the subscripts and the argument of $A$: Take the first term on the RHS of profit, \begin{align} PA&=\frac{\mathrm dC(A)}{\mathrm dA}\cdot A\\ &...
Herr K.'s user avatar
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3 votes
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If current inflation is (probably) not due to corporate pricing power, then why are profit margins currently so high?

What's the relationship between corporate profit margins and inflation?  There isn't any strong relationship between corporate profit margins and inflation. There isn't even a priori reason why ...
1muflon1's user avatar
  • 56.8k
2 votes

Does the price level in a competitive market have to be at the intersection of the Average Cost curve and the Marginal Cost curve?

One of the assumptions of perfect competition is that firms are price takers. Ultimately price is determined by the quantity of goods supplied, and with perfect competition, there are infinite (or an ...
Kitsune Cavalry's user avatar
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2 votes

USA seigniorage revenue

In former times, seignorage was a de facto fee charged by a government authorized mint for converting precious (or semi-precious) metals into de facto trademarked hard currency. Typically a mint ...
Jasper's user avatar
  • 230
2 votes

In perfect competition, why is there economic loss if marginal cost > marginal revenue?

In perfect competition, $MR=P$. When $MC>P$, marginally you're generating losses but you may still be profitable overall. This is represented by your (positive) yellow area, which is smaller than ...
Yann's user avatar
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