ROI also takes into account the different divisions of the business that have many differences such as size, income of the division’s manager, capital, etc. Because ROI is almost biased towards managers who are paid based on their numbers, this measure can be manipulated to profit themselves instead of the bu... ... middle of paper ... ... can still show a strong ROA. The assets that a company has basically run the business, so managers have a higher incentive to focus their attention on the leverage of the assets of the company. But if I had to pick one from the choices, it would have to be cash flows. Everything else can be manipulated so easily.
In the short-run, if firms are making losses, i.e. price is less than the average cost, firms will have reason to exit from the market. The number of products decreases reducing the range of choice of consumers. The demand will increase shifting the demand curve of the remaining firms to the right. This will raise the profits of the firms remaining in the market.
This oligopoly is termed collusive. A collusive oligopoly has the ability to behave in the manner of a m... ... middle of paper ... ...nt with the relevant demand curve of D1D1, and prices below Po are consistent with the relevant demand curve of D2D2. The kink in the demand curve occurs at the point labeled E. There is also a gap in the marginal revenue curve marked by MR1 and MR2. There are many oligopolies in the world market that dominate their respective fields. They have the ability to control prices and quantities of their goods, forcing other companies in that specific industry to adjust to the oligopoly’s changes.
Management are responsible for making decisions within firms and these decisions often involve risk and uncertainty. Models have been developed, all of which are based upon the objective of firms, to help identify the decision which must be made in order to achieve the desired outcome (Moschandreas, 2000). The neoclassical model states the firm’s main objective is profit maximisation. However, economists believe it is unrealistic to assume firm’s aim for maximum profits in this modern economy for reasons discussed later. The managerial school offers alternative models in substitute of the neoclassical model which assumes profit maximisation.
The tax burden can possibly be split evenly between producer and consumer, by the decision of the producer. This occurs if the producer predicts the consumer will not respond well to a product’s rise in price, making the product now elastic and the majority of the burden would be placed on the producer. To resolve this matter, the producer pays a percentage of the tax burden and the consumer the remainder. However, if a product has an inelastic demand such as fuel and cigarettes, an excise tax that focuses on these individual products is used. Businesses determine price with the use of price elasticity of demand.
Nonetheless, a decision to expense the costs will be reported in cash flow from operations. • Reported assets – The company’s total assets will be smaller. • Financial ratios – When it comes to different financial ratios, the decision to expense will result in higher operation-efficiency ratios. Limitations of expensing There are certain special limitations to expensing, especially when it comes to starting up a business. In many instances, immediate costs can often be capitalised even if they don’t necessarily normally fall under the capitalising rules during the first financial year of the company.
If the price level is below equilibrium, there will be excess demand in the short run. In both situations there should be a process taking the economy towards the equilibrium level of output. Consider for example a situation where aggregate supply is greater than current demand. This will lead to a build up in stocks (inventories) and this sends a signal to producers either to cut prices (to stimulate an increase in demand) or to reduce output so as to reduce the build up of excess stocks. Either way - there is a tendency for output to move closer to the current level of demand.
The budget is a plan set out in figures, which enables managers to exercise control, coordination and communication. (Horngren et al., 2005). The difference between what is budgeted to happen and what actually happens is a well known term of a variance. A favourable variance is one that enables a business to increase its revenue and profits, for example if a sales revenue is higher than budgeted. An non favourable variance will reduce the number of profits e.g.
The Propensity to Consume might be influenced by many factors; one of which, could be the interest rates. Furthermore, the Demand for Money, which is the relationship between the quantity of money, that people want to hold, and some factors that might determine the quantity, dictates to a certain degree how much people save, and if they do save at all. In addition, the Consumer Confidence Index is known to be a crucial factor, determining whether there is demand for money or not; people tend to save more during recessionary gaps, expecting tough times ahead. Likewise, people tend to save less when the economy operates at its optimal state, and people are more optimistic about the future. Subsequently, we have determined why people might be inclined to save money instead of spending them on consumer’ goods.
Introduction In this essay we will be elaborating on the concept of price elasticity of demand. To execute this objective we will cover how demand is impacted due to the change in price and how this is measured. Price elasticity of demand is considered to be how price sensitive the quantity demanded of a good is to the change in a price, with all other factors remaining constant. In other words, it is the change in the amount of goods consumers demand when there is a change in price level. Price elasticity measures how consumers respond to a change in price levels.