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Econ defs (chapter 1)


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business profit
Residual of sales revenue minus the explicit accounting costs of doing business
compensatory profit theory
Above-normal rates of return that reward efficiency
economic profit
Business profit minus the implicit costs of capital and any other owner-provided inputs
expected value maximization
Optimization of profits in light of uncertainty and the time value of money
frictional profit theory
Abnormal profits observed following unanticipated changes in demand or cost conditions
innovation profit theory
Above-normal profits that follow successful invention or modernization
managerial economics
Applies economic tools and techniques to business and administrative decision making
monopoly profit theory
Above-normal profits caused by barriers to entry that limit competition
normal rate of return
Average profit necessary to attract and retain investment
Seek the best solution
present value
Worth in current dollars
profit margin
Accounting net income divided by sales
return on stockholders’ equity
Accounting net income divided by the book value of total assets minus total liabilities
Seek satisfactory rather than optimal results
theory of the firm
Basic model of business
value of the firm
Present value of the firm’s expected future net cash flows

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