# Tag Info

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 ...

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 ...

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

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: $$\pi = pq_i - aq_i^2$$ ...

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^* ...

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

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

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

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

Economic profit I think there are some problems with the formulation in your question, first you heavily focus on opportunity cost but note accounting profit does not even properly capture all revenue firm gets. I will first focus on economic profit more broadly and at the end go back to opportunity cost. Following Varian Microeconomic Analysis pp 24 (...

2

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 shows restaurants operate with margins that are tight, but not as tight as commonly believed. A potential hypothesis of the reason behind this is restaurants ...

2

I don't see how the government taking X% of a business's profits is stopping the business from increasing prices (or is this just the penalty in the enforcement clause?), so I am going ignore that part. What you are describing is essentially setting prices, determining what prices a business can and cannot set. (If you merely prohibited passing on costs, ...

2

Why can't they offset the loss (caused by special case) from their earlier profits rather than resort to drastic job cuts and government bailout? There are several reasons: History is already past, decisions are made to handle now and the future. The limiting factor is not really the profits but cash (generally called with a more fancy name as liquid ...

1

The other answers already provided some intuition so I will try to be slightly more technical (although not so that a non-economist would not be able to follow). tl;dr: Government cannot prevent passing tax burden just by controlling prices (at best it can mitigate it and even that at the expense of workers). Generally to prevent the passing of the burden it ...

1

Generally speaking, companies don't hold onto a bunch of cash. Doing so is risky and inefficient. If you (as a company's board) hold onto too much cash instead of paying it back as dividends, your investors can get upset to the point where they replace the board with someone who will pay dividends. There's also a big opportunity cost. Money in the bank ...

1

Why can't they offset the loss (caused by special case) from their earlier profits rather than resort to drastic job cuts and government bailout? That doesn't really mean anything. They had those profits in the past. They had those losses this year. Those are facts. What does it mean to use one to offset the other exactly? As a general rule, what you should ...

1

If: The profit-loss diagram for the "long stock, short call" position and the "short put" position are almost exactly the same then it is impossible that for the former, you may be able to profit more when the stock goes up as, in addition to the premium collected from selling the option, you also get to profit from capital gains and ...

1

The primary consideration in practice is that the initial investment is larger if you are long the stock, and thus consumes more balance sheet. The next consideration is that if you don’t hold to maturity, the implied volatility exposure is opposite (and the associated greeks) for the positions. After that, there are only voting rights, jurisdiction-...

1

Your figures reports ex-post (say end of year) returns on capital investments. Ex-ante (beginning of the year, or before the investment) these returns are random and unknown, and there is a trade-off between return and risk. If investor $i$ is investing rationally her assets in firm $j$ instead of $k$, according her specific risk aversion and information set ...

1

Edit: after OP made changes to his question and clarification this answer became less relevant. I am still keeping it here because OP said some parts of it and references are still useful. There are several reasons why even if all markets were perfect rates of return would not equalize. I will just focus on some major ones. Many countries have some capital ...

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