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14

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 shareholders who own the company, and they are the ones deciding. And they want money. Otherwise they would give their money to charity. So when a company makes a ...


13

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 not enough information to say anything in this situation. Profits are routinely paid out as dividends to shareholders or reinvested in the company (we dont know ...


11

It seems economic models do not explicitly include ownership of the firm (not of the physical capital, an input used to produce). Many economic model do have profits. We're just more careful about what we call it. See the definition of "economic profit." When you think of profits, you need to ask yourself if the money you are making is simply a fair ...


10

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 losses and profits but merely that they choose not to do this. Government bailouts in similar situations have been critized for the reasons that you state: it ...


8

Greg Mankiw's answer: plus extra characters


6

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 think of it as a variable that tells you what average prices are compared to some baseline. Price level is often measured using the consumer price index (CPI). ...


5

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 market Supply is $$nq_i^* = \frac{180}{4} p = 45p,$$ and equilibrium market price $$45 p = 100 - 5 p \implies p^* = 2$$ and equilibrium market quantity $$Q* = nq_i^* ...


5

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 equal marginal cost there is no profit only on the last unit sold. Here is the full explanation: The profit function of a firm is given by: $$\pi = pq_i - aq_i^2$$ ...


4

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. Amazon was incorporated on July 5, 1994, and begun service in July 1995. This means that not only it did not generate profit in its first year, there were ...


4

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 this is what makes basic sense). Now, "cost" is the value of productive resources absorbed into production, in the given time period. The total value of an "...


4

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 taken from the profit of the firm. In that way, income from other sources can continue to increase even though firms earn zero profit. Other sources of income ...


4

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. There is only two ways to go about it rationally, either you are profiting from doing something, or you are not profiting by not doing something, which is ...


4

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" had this dual meaning historically, referring to both the activity of work and the result of work, whereas nowadays the latter meaning tends to be qualified (...


4

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, whether a loan should be taken depends only on the marginal profit from taking that loan. It's really not clear what you mean by "offsetting" losses ...


3

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 points out the opportunity costs are not avoided profits but the value of the best alternative forgone. For certain firm decisions that may be forgone profit, ...


3

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 is truly trivial you will get nothing. If what you are doing is not trivial but relatively easy then you will soon have a competitior who is offering 10 euros ...


3

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 worker is paid his marginal product (where $MPL=w$) we only pay what he produces. If marginal cost is constant and marginal revenues are constant across all ...


3

profit (v.) early 14c., "to advance, benefit, gain," from profit (n.) and from Old French prufiter, porfiter "to benefit," from prufit (see profit (n.)). Related: Profited; profiting. profit (n.) mid-13c., "income;" c. 1300, "benefit, advantage;"from Old French prufit, porfit "profit, gain" (mid-12c.), from Latin profectus "profit, advance, ...


3

I think this is just a reflection of the casual language of the popular press. What appears to be in dispute in this question is if profits can be negative or if that case is properly referred to as losses. I agree that in many contexts this is at best a confusing usage. Most dictionary definitions are clearly implying that profits must be positive (e.g., "...


3

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". Not necessarily "equilibrium" or "competitive", because such characterizations are some steps further down the modelling road, in making assumptions on the ...


3

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 - How many people are working on a specific task - How much capital is available to help the person perform the 1 hour of work 1 hour of work will depend on ...


3

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 profit function. Next, your $n(v)$ seems to assume that $\alpha \sim U[0,1]$, but you set $\alpha \sim U[0,2]$. I assume this is a typo and I edited your ...


3

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 most likelihood it may have been distributed to shareholders as dividend. If it were accessible, the company would be cash rich and may very well would have not ...


3

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 it $M$, what does $M/P$ mean? Note that: $P \times (M/P)=M$ so $M/P$ is the number of consumption bundles with price $P$ you can buy with your $M$ units of ...


2

My reading is yes, it is procyclical in levels and margins. This paper uses industry and firm data to look at price cost mark-ups and firm profit margins in U.K. manufacturing and services. In particular it examines how they behave over the business cycle. It has two main findings. First, the estimated average mark-ups and the profit margin ...


2

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 arbitrarily large) number of firms, so a firm that changes their price by itself will simply have no business, since there are cheaper places to buy from. The ...


2

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 would charge about a ten percent fee for this service. Anyone in possession of the hard currency could "redeem" the currency by melting it down back into the ...


2

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 the blue area (the optimal one).


2

There is no loss at Q' and you are indeed right that the yellow area represents the firm profits. However, if you were to compare the yellow area to the blue area you would find that the latter is greater. So profit for the firm is not optimal at Q' but is optimal at Q*. This is what the quote refers to, it says the firm will be generating losses on its ...


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