12/9

Profits, Losses, and Entrepreneurs

•  Companies make money by satisfying needs, not causing them
• Profits do not necessarily have a negative connotation
• doesn't mean companies are exploiting us
• Entrepreneur Process
• Find out what people want
• Get the Means to produce said product
• Land 
• explicit cost
• rent: buying land
• implicit cost
• rent: opportunity cost of renting home to others for $
• Labor 
• explicit cost
• wages: paying the labor
• implicit cost
• foregone wages
• Capital
• explicit cost
• rent
• implicit cost
• foregone rent
• Explicit Cost + Implicit Cost = Total Cost
• implicit= opportunity cost ; explicit= product cost
• Profitability
• Rental Rate + Appreciation Rate - Interest Cost
• Rental Rate = Annual Rate/Price of Good
• benefit of buying is the foregone rental payments
• Example: Lease for 1 yr = $12,000    Buy= $32,000 Annual Rate/Price of Good     $12,000/$32,000= 37.5%
• Appreciation Rate = change in asset price/price
• Example continued: -8,000/32,000= -25%
• Interest Cost
• Example: 10%
• Example finished: 37.5% - 25% - 10% = 2.5%
• The 2.5%  is the amount that would be saved if the product was bought.