Notes, summaries, assignments, exams, and exercises for Economics for Primary education

Economic Profits

Economic profits are calculated as total revenue (TR) minus accounting (explicit) costs and implicit costs.

Economic costs = accounting (explicit) costs - implicit costs.

In managerial economics, the term "costs" refers to economic costs, and the term "profits" refers to economic profits.

Baumol's Sales Revenue Maximizing Model in Practice

Large firms have research units that develop new product ideas or production techniques. The application of these projects is spread over time to avoid wide swings in the firm's economic performance. Baumol seems to imply that the risk-avoidance and the desire for steady growth of large corporations secure 'orderly markets,' in the sense that they have stabilizing effects on the economy.

O. Williamson'

Explain the differences and concerns with performance measures

Different types of Performance Measures. 2 types of measures:

• Objective Measures: quantitative and based on counts of behaviors or outcomes. Ex: number of students in a class, multiple choice exam.
• Subjective Measures: qualitative and based on judgments from raters.

Explain the value of using multiple sources for performance appraisal ratings

Common Problems with Performance Measures (1/2) Rater Errors. Rating errors occur when:

1. Raters provide assessments that follow an undesirable pattern.
2. The rater does not properly account for factors that might influence assessments.

A common error is central tendency error, which is the pattern of placing almost everyone in the middle of the scale....

Effective Segmentation

MEASURABLE: The size, purchasing power, and profiles of the segments can be measured.

ACCESSIBLE: The market segments can be effectively reached and served.

SUBSTANTIAL: The market segments are large or profitable enough to serve. A segment should be the largest possible homogeneous group worth pursuing with a tailored marketing program.

DIFFERENTIABLE: The segments are conceptually distinguishable and respond differently to different marketing-mix elements and programs.

ACTIONABLE: Effective programs can be designed for attracting and serving the segments.

Important:

The difference delivers a highly valued benefit to target buyers.

Differences to Promote

DISTINCTIVE: Competitors do not offer the difference, or the company can...

1. Sunk Costs

Costs that do not vary according to different decisions

• Eg. A student buys a book for $50 and can sell it for $20. Sunk costs amount for $30
• Eg. Market research, R&D (frequent in IT sector)

Managerial decision-making:

1. Ignore sunk costs and consider only avoidable costs to be very careful before committing to costs that will become sunk, since such commitments cannot be reversed
2. Exploit investments in sunk costs as a way to strategically influence the behavior of competitors

- Major entry barrier because they increase the cost of exit

Relationship between fixed and sunk costs: - sunk costs are the amount of fixed costs that cannot be recouped

2. Incremental Costs

Change in costs between undertaking a course of action and not undertaking...

Business Entities and Tax Implications

Taxation of Partnerships

Partnerships are not taxed at the corporate level. Instead, taxes are levied on the individual partners based on their share of the partnership's income.

Taxation of Corporate Entities

Corporations have a separate legal personality and are subject to corporate income tax. Shareholders are also taxed on the dividends they receive.

Justification for Corporate Income Tax

• Avoid tax deferral
• Neutrality
• Incentivize investment

Tax calculation: Tax = Tax Base x Tax Rate

Corporate and Shareholder Tax Systems

Classical System

Corporate profits are taxed at the corporate level, and dividends are taxed again at the shareholder level, resulting in economic double taxation.

Full Integration System

Corporations...

5) Family Business Survival Strategies

A study indicates that family businesses often struggle to survive across multiple generations. However, there are four key strategies that can increase their chances of longevity:

Establish Strong Governance

Creating a solid governance framework is essential. This includes attracting and retaining top talent while maintaining a clear separation between the family and the business itself.

Preserve "Family Gravity"

Identify and empower key family members who can align everyone's interests and drive the pursuit of common goals. These individuals serve as motivators and role models within the family and the business.

Early Talent Identification and Development

Invest in developing the skills and potential of family...

Incoterms: FAS, FOB, CIP, and CPT

What kind of cargo is used for FAS? Why?

Containers are used for FAS because the goods are carried on board a ship.

Which are the two possible cases of delivery for FCA?

• When the goods have been loaded on the transport designated by the buyer or by a person acting on its behalf.
• When the goods are made available to the seller's carrier transport, without being discharged.

Allocation of Costs and Risk for FAS and FOB

The seller is required to deliver the goods alongside the actual ship on the pier. From that point forward, the buyer bears all costs (loading cost, freight, insurance) and risks. Under FAS terms, the buyer is required to clear the goods for export and pay the cost of loading the goods.

Why is it so important

Stockholders' Equity

Rights of stockholders to share proportionately in:

1. Profits
2. Management
3. Corporate assets upon liquidation
4. Any new issues of stock of the same class (preemptive right)

Preemptive Right: Protects an existing stockholder from involuntary dilution of ownership interest.

Key Concepts

Additional Paid-in Capital: Indicates any excess over par value paid in by stockholders in return for the shares issued to them.

Retained Earnings: Represents the earned capital of the company.

Lump-Sum Sales: When a corporation issues two or more classes of securities for a single payment.

• Incremental Method: Company cannot determine the fair value of all classes of securities.
• Proportional Method: Determining relative value is available for each class of security.

What are the objectives of auditing

AAS-1 describes the basic principles, which govern the auditor's professional responsibilities and which should be complied with whenever an audit is carried out. These are:-

1. Integrity, objectivity and independence:

The auditor should be straightforward, honest and sincere in his approach to his professional work. He must be fair and must not allow prejudice or bias to override his objectivity.

Confidentiality:

The auditor should respect the confidentiality of information acquired in the course of his work and should not disclose any such information to a third party without specific authority or unless there is a legal or professional duty to disclose.

Skill and competence:

The audit should be performed and...

troškovna primjena??

How to use implications of multiple output cost functions?

Economies of Scope and Cost Complementarity

Economies of scope

• total cost of producing both products together is less than the total cost of producing both products separately

Implications for managerial decision making: managers alert to the possibility of profitably extending the product line to exploit economies of scope: reasons for mergers and acquisitions, reasons for not disinvesting a product line

Cost complementarity

• exists when the marginal cost of producing one output is reduced when the output of another product is increased:

Example of specialized investment

An investment in a particular exchange that cannot be recovered in another trading relationship

• Eg. Spending