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BUS101 Saylor Adcamy
Unit 1; 1.1; Section 4; Q & A
| Question | Answer |
|---|---|
| What is profit? | Profit is a firm's revenue minus its expenses. |
| What is value in business terms? | The present value of a firm’s current and future profits. |
| What is the difference between normal and economic profit? | Normal profit is total opportunity cost |
| At what point does a firm achieve maximum profit? | When the difference between total revenue and total cost is at its greatest. |
| Why is value linked to profit maximization? | Because maximizing profits increases the present value of a firm's earnings. |
| What does game theory study? | Strategic situations where individuals or organizations choose actions to maximize returns. |
| What does economic value measure? | The benefit an economic actor gains from a good or service, relative to currency. |
| What is consumer surplus? | The difference between what a consumer is willing to pay and the actual market price. |
| What is gross profit? | Sales revenue minus cost of goods sold (COGS). |
| What is EBITDA? | Earnings before interest, taxes, depreciation, and amortization. |
| What is EBIT? | Earnings before interest and taxes, also known as operating profit. |
| What is EBT? | Earnings before tax, also called net profit before tax or pre-tax income. |
| What is net profit after tax? | Sales revenue minus all expenses, including taxes. |
| What is value to a firm? | The sum of current and future profits discounted to present value. |
| How is the present value of a firm calculated? | By summing current and future expected profits divided by (1 + interest rate)^n. |
| If a firm earns $10,000 now and $10,500 annually for 3 years at 8% interest, what is its value? | C. $37,060 |
| Why might market price be less than economic value? | Because value reflects willingness to pay, not just price — creating consumer surplus. |
| What role does profit maximization play in firm value? | It directly influences the firm’s long-term value through increased earnings. |
| What are two methods of finding maximum profit in economics? | Graphing total revenue and cost or setting marginal revenue equal to marginal cost. |
| Why might game theory be needed for profit maximization? | Because in interdependent markets, outcomes depend on the actions of others. |
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