1d kno how on normal profit
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Profit measures the return on risk-taking by entrepreneurs. There are three types of profit: normal profit, which is required to keep a business operating; sub-normal profit, which is less than normal; and abnormal or supernormal profit, which occurs when firms earn more than normal profit and provides incentives for other firms to enter the market. Economists calculate economic profit by considering total revenue, explicit costs, and opportunity costs of capital invested and owner's salary elsewhere.
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in this report, it discuss about major role of profit , its types and various theories of profit to understand the principles of accounting. and how it helps to understand the various techniques to understand it
Accounting equation
The accounting equation shows that a business's economic resources must equal the claims against those resources. Economic resources, also called assets, are items owned that provide future economic benefits. Assets equal liabilities plus equity. Liabilities are obligations to pay others, while equity is the owners' residual claim after deducting liabilities from assets. Expenditures must be classified as capital or revenue for the accounting periods to properly match expenses with revenues and show accurate asset values and financial results in accordance with accounting principles.
10Responsibility Accounting for managers.pptx
Responsibility accounting is a management accounting system that assigns accountability for planning, budgeting, and cost control to individual responsibility centers. There are four main types of responsibility centers: cost centers, which are accountable for controlling costs; revenue centers, which are accountable for generating revenue; profit centers, which are accountable for profits; and investment centers, which are accountable for investments and returns. Responsibility accounting increases manager accountability and supports decision-making, but can also lead to conflicts between departments if not implemented carefully.
Calculation of goodwill
This document discusses methods for valuing goodwill of a business. It defines goodwill as the value of a firm's reputation that generates profits above normal levels, known as super profits. The value of goodwill is affected by factors like location, nature of business, management efficiency, time in business, market situation, and special advantages. Goodwill needs to be valued when partners join, retire, die, or the business dissolves. Common valuation methods include average profits, weighted average profits, super profits, capitalization of average/super profits, and present value of super profits. Illustrative examples are provided for each method.
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Mb0045 Master of Business Administration- MBA Semester 2 MB0045 –Financial Ma...
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Meeting 3 - Profitability Ratios (Financial Reporting and Analysis)
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Profitability & Control Measures, Demand and Challenges.pptx
Profitability & Control Measures, Demand and Challenges.pptx
What is profit , types of profit, theories of profit
What is profit , types of profit, theories of profit
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3 usin the kno how economics treasure hunt
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1b kno how on mkt structure
Market structures are determined by the number of firms, barriers to entry, product homogeneity, level of knowledge sharing, and interdependence between firms. Key characteristics include whether the market has one firm (monopoly), a few large firms (oligopoly), or many small firms (perfect competition). Barriers to entry, branding, and imperfect knowledge can influence market structure by affecting competitiveness. The structure impacts pricing, profits, and economic efficiency.
1a kno how on mkt structure conduct & performance
This document provides an introduction to market structure and the different types of market structures. It discusses how the number and size of firms in a market can affect competition and pricing decisions. The main types of market structures discussed are perfect competition, monopolistic competition, oligopoly, and monopoly, ranging from high competition to high market power. The document also examines how market structure can influence the conduct and performance of firms in terms of pricing, output, innovation, and efficiency.
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This document discusses concentration ratios and barriers to entry and exit in industries. It provides information on calculating 3 and 5 firm concentration ratios for different industries. It also includes a crossword puzzle with clues about common barriers to entry and exit, such as capital requirements, economies of scale, brand loyalty, and access to distribution channels. Solving the puzzle identifies specific barriers like high startup costs, legal barriers, and control of resources that make it difficult for new companies to enter or existing companies to leave an industry.
How u-doin on growth of firms
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Kno it use-it on concentration ratio calculations
The document provides data on market shares and concentration ratios for various industries, including:
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1a kno how on market concentration
The document discusses market concentration and concentration ratios. It defines a concentration ratio as the proportion of market share accounted for by the top X number of firms. For example, a 5 firm concentration ratio of 80% means the top 5 firms account for 80% of the market share. A 3 firm concentration ratio of 72% means the top 3 firms account for 72% of the market share. The document also lists background readings and learning objectives for students to interpret the meaning of concentration ratios.
How u-doin on growth of firms
Firms grow through mergers and acquisitions or expanding market share to benefit from economies of scale, satisfy managerial egos, avoid takeovers, spread risk, and maximize profits and market share. Mergers can be horizontal between firms in the same industry, vertical between firms in different production stages, or conglomerate between unrelated firms. Recent examples include British Airways acquiring Iberia, Kraft acquiring Cadbury, and Disney acquiring Marvel Comics.
1a kno how on efficiency
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This document defines different levels of elasticity from perfectly elastic to perfectly inelastic, showing how demand responds to changes in price for each level. Perfectly elastic demand means quantity demanded is infinite at a given price and zero at any other price, resulting in zero total revenue. Elastic demand means a percentage change in quantity demanded greater than the percentage change in price, resulting in falling total revenue. Unitary elasticity means percentage changes in quantity demanded and price are equal, keeping total revenue unchanged. Inelastic demand means a smaller percentage change in quantity demanded than price, raising total revenue. Perfectly inelastic demand produces no change in quantity despite price changes, also raising total revenue.
1aa kno how on price elasticity of demand
This document defines price elasticity of demand and explains how to calculate and interpret it. Price elasticity of demand measures the responsiveness of quantity demanded to changes in price. It is calculated as the percentage change in quantity demanded divided by the percentage change in price. Demand is elastic if the percentage change in quantity demanded is greater than the percentage change in price, inelastic if the opposite is true, and unitary if the changes are equal. The only determinant of price elasticity of demand is the availability of substitutes - the more substitutes that exist, the more elastic the demand. Understanding price elasticity is important for determining how changes in price will affect total revenue and for analyzing tax policy and production decisions.
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1b kno how on profit max
There are several ways for a firm to increase profits:
1. Increase output up to the point where marginal revenue equals marginal cost, which is the profit-maximizing level of output.
2. Reduce costs of production to lower the average cost curve and increase the profit margin.
3. Shift the demand curve outward through marketing, innovation, or other means to increase the profit-maximizing price and output.
1a kno how on motives for firms
1) The document discusses different corporate objectives including profit maximization, share price maximization, revenue maximization, sales maximization, and social entrepreneurship.
2) It explains the concept of profit maximization using marginal cost and marginal revenue, where a firm will produce up to the point where marginal cost equals marginal revenue.
3) The document also discusses alternatives to pure profit maximization including satisficing behavior, where firms aim to generate sufficient profits to satisfy shareholders rather than always seeking to maximize profits.
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1d kno how on normal profit
- 1. Profit measures the return to risk when committing scarce resources to a market or industry. Entrepreneurs take risks for which they require an adequate rate of return. The higher the market risk and the longer they expect to have to wait to earn a positive return, the greater will be the minimum required return that an entrepreneur is likely to demand. Economists distinguish between different types of profit – explained below: 1. Normal profit - is the minimum level of profit required to keep factors of production in their current use in the long run. Normal profits reflect the opportunity cost of using funds to finance a business. If you decide to put £200,000 of your savings into a new business, those funds could have earned a low-risk rate of return by being saved in a bank account. You might therefore use the rate of interest on that £200,000 as the minimum rate of return that you need to make from your investment in order to keep going in the long run! Because we treat normal profit as an opportunity cost of investing financial capital in a business, we include an estimate for normal profit in the average total cost curve, thus, if the firm covers its AC then it is making normal profits. 2. Sub-normal profit - is any profit less than normal profit (where price < average cost) 3. Abnormal profit - is any profit achieved in excess of normal profit - also known as supernormal profit. When firms are making abnormal profits, there is an incentive for other producers to enter a market to try to acquire some of this profit. Abnormal profit persists in the long run in imperfectly competitive markets such as oligopoly and monopoly where firms can successfully block the entry of new firms. We will come to this later when we consider barriers to entry in monopoly. Calculating economic profit Consider the following example: The table shows data for an owner-managed firm for a particular year. • Total revenue £320,000 • Raw material costs £30,000 • Wages and salaries £85,000 • Interest paid on bank loan £30,000 • Salary that the owner could have earned elsewhere £32,000 • Interest forgone on owner's capital invested in the business £20,000 In a simple accounting sense, the business has total revenue of £320,000 and costs of £145,000 giving an accounting profit of £175,000. But the firm’s profit according to an economist should take into account the opportunity cost of the capital invested in the business and the income that the owner could have earned elsewhere. Taking these two items into account we find that the economic profit is £123,000. KTKhe Nature of Profit KNoKrmal & supernormal profit