Learn Before
Owner's Discretion to Deviate from Profit Maximization
Owners as Residual Claimants of a Firm
Financial Consequence for an Owner Deviating from Profit Maximization
Unlike managers, when a firm's owner makes a decision that reduces profits, the resulting financial loss directly impacts the owner's personal income. This occurs because the owner is the firm's residual claimant, meaning they are entitled to the profits that remain after all costs are paid.
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Social Science
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Economy
CORE Econ
Economics
Introduction to Microeconomics Course
The Economy 2.0 Microeconomics @ CORE Econ
Ch.6 The firm and its employees - The Economy 2.0 Microeconomics @ CORE Econ
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Restaurant Owner's Non-Profit-Maximizing Choices
Financial Consequence for an Owner Deviating from Profit Maximization
Owner's Objective: Profit Maximization to Increase Asset Value
Asymmetric Distribution of Benefits from Increased Firm Revenue
Financial Consequence for an Owner Deviating from Profit Maximization
A small software company generates 250,000, payments to technology service suppliers are 50,000. An unexpected efficiency in their operations reduces supplier costs by $20,000. Based on the fundamental structure of a firm, what is the direct financial consequence of this cost saving?
Investment Decision in a Firm
In a firm where revenues increase significantly due to a new, highly effective marketing strategy developed by the marketing team, the firm's legal structure ensures that both the owners and the marketing team members automatically receive a direct share of the resulting increase in profits.
A firm generates revenue and must pay various parties involved in its operation. Match each party with the nature of their financial claim on the firm's revenue.
Financial Risk and Reward of Firm Ownership
Owner's Decision-Making and Firm Income
A firm has completed its fiscal year and must distribute its revenue. Arrange the following claims on the firm's revenue in the correct sequence of payment, from first to last.
In the structure of a firm, the income that remains after subtracting all contractual payments like wages, supplier bills, and taxes from total revenue is known as the residual. The legal right to this income makes the firm's owners its ________ ________.
Critique of a Surplus Distribution Plan
A manufacturing firm experiences a sudden, sharp increase in the market price of its essential raw materials, leading to a significant rise in its production costs. All other factors, including the firm's revenues and employee wages, remain unchanged. Which of the following statements most accurately describes the immediate financial impact of this situation based on the typical structure of a firm?
Definition of an Asset
Learn After
The sole owner of a profitable local bookstore decides to stop selling popular, high-margin bestsellers and instead dedicate that shelf space to rare, translated poetry books. The owner makes this change due to a personal passion for poetry, despite knowing it will reduce the store's monthly profits by $1,200. Which statement best analyzes the direct financial consequence of this decision for the owner?
Owner's Decision and Financial Impact
Owner vs. Manager: Financial Consequences
True or False: If the sole proprietor of a profitable coffee shop decides to give away free coffee every Friday, a choice that reduces the shop's overall profit, the direct financial cost of this decision is primarily absorbed by the shop's salaried managers and hourly employees.
Analyzing the Cost of an Owner's Preference
For each scenario, match the decision-maker with the most accurate description of the direct financial consequence they personally face as a result of their action.
Calculating the Cost of an Owner's Preference
Quantifying the Cost of an Owner's Preference
Comparing Decision Consequences in Different Ownership Structures
When the owner of a firm makes a business decision based on personal preference that lowers the firm's profitability, the financial cost of that decision is borne directly by the owner. This is because the owner is the firm's __________, the party legally entitled to all income that remains after every other contractual cost has been paid.