on 11-Jan-2017 (Wed)

EXAMPLE 1 Economic Rent and Investment Decision Making

The following market data show the global demand, global supply, and price on an annual basis for gold over the period 2006–2008. Based on the data, what observation can be made about market demand, supply, and economic rent?

Year	2006	2007	2008	Percent Change 2006–2008
Supply (in metric tons)	3,569	3,475	3,508	–1.7
Demand (in metric tons)	3,423	3,552	3,805	+11.2
Average spot price (in US$)	603.92	695.39	871.65	+44.3
Source: GFMS and World Gold Council.

Solution:

The amount of total gold supplied to the world market over this period has actually declined slightly by 1.7 percent during a period when there was a double-digit increase of 11.2 percent in demand. As a consequence, the spot price has dramatically increased by 44.3 percent. Economic rent has resulted from this market relationship of a relatively fixed supply of gold and a rising demand for it.

The typical steps in the capital budgeting process:

• Generating good investment ideas to consider.
• Analyzing individual proposals (forecasting cash flows, evaluating profitability, etc.).
• Planning the capital budget. How does the project fit within the company's overall strategies? What's the timeline and priority?
• Monitoring and post-auditing. The post-audit is a follow-up of capital budgeting decisions. It is a key element of capital budgeting.

The brain structures that are involved in learning include the hippocampus, the amygdala, and the basal ganglia. To design the best learning experiences, we need to understand and respect the neuroscience of learning.

Because of their limited availability in nature, certain resources—such as land and specialty commodities—possess highly inelastic supply curves in both the short run and long run (shown in Exhibit 1 as a vertical supply curve). When supply is relatively inelastic, a high degree of market demand can result in pricing that creates economic rent. This economic rent results from the fact that when price increases, the quantity supplied does not change or, at the most, increases only slightly. This is because of the fixation of supply by nature or by such artificial constraints as government policy.

How is the concept of economic rent useful in financial analysis? Commodities or resources that command economic rent have the potential to reward equity investors more than what is required to attract their capital to that activity, resulting in greater shareholders’ wealth. Evidence of economic rent attracts additional capital funds to the economic endeavor. This new investment capital increases shareholders’ value as investors bid up share prices of existing firms. Any commodity, resource, or good that is fixed or nearly fixed in supply has the potential to yield economic rent. From an analytical perspective, one can obtain industry supply data to calculate the elasticity of supply , which measures the sensitivity of quantity supplied to a change in price. If quantity supplied is relatively unresponsive ( inelastic ) to price changes, then a potential condition exists in the market for economic rent. A reliable forecast of changes in demand can indicate the degree of any economic rent that is forthcoming from the market in the future. When one is analyzing fixed or nearly fixed supply markets (e.g., gold), a fundamental comprehension of demand determinants is necessary to make rational financial decisions based on potential economic rent.

In the short run, the normal profit rate is relatively stable, which makes accounting and economic profit the two variable terms in the profit equation. Over the longer term, all three types of profit are variable, where the normal profit rate can change according to investment returns across firms in the industry.

Normal profit is necessary to stay in business in the long run; positive economic profit is not.

A business can survive indefinitely by just making the normal profit return for investors.

Failing to earn normal profits over the long run has a debilitating impact on the firm’s ability to access capital and to function properly as a business enterprise.

the market value of equity and shareholders’ wealth deteriorates whenever risk to achieving normal profit materializes and the firm fails to reward investors for their risk exposure and for the opportunity cost of their equity capital.

the ultimate goal of analyzing the different types of profit is to determine how their relationships to one another influence the firm’s market value of equity.

Exhibit 2. Relationship of Accounting, Normal, and Economic Profit to Equity Value

Relationship between Accounting Profit and Normal Profit	Economic Profit	Firm’s Market Value of Equity
Accounting profit > Normal profit	Economic profit > 0 and firm is able to protect economic profit over the long run	Positive effect
Accounting profit = Normal profit	Economic profit = 0	No effect
Accounting profit < Normal profit	Economic profit < 0 implies economic loss	Negative effect

In free markets—and even in regulated market economies—profit maximization tends to promote economic welfare and a higher standard of living, and creates wealth for investors. Profit motivates businesses to use resources efficiently and to concentrate on activities in which they have a competitive advantage. Most economists believe that profit maximization promotes allocational efficiency—that resources flow into their highest valued uses.

Overall, the functions of profit are as follows:

• Rewards entrepreneurs for risk taking when pursuing business ventures to satisfy consumer demand.

• Allocates resources to their most-efficient use; input factors flow from sectors with economic losses to sectors with economic profit, where profit reflects goods most desired by society.

• Spurs innovation and the development of new technology.

• Stimulates business investment and economic growth.

There are three approaches to calculate the point of profit maximization. First, given that profit is the difference between total revenue and total costs, maximum profit occurs at the output level where this difference is the greatest. Second, maximum profit can also be calculated by comparing revenue and cost for each individual unit of output that is produced and sold. A business increases profit through greater sales as long as per-unit revenue exceeds per-unit cost on the next unit of output sold. Profit maximization takes place at the point where the last individual output unit breaks even. Beyond this point, total profit decreases because the per-unit cost is higher than the per-unit revenue from successive output units. A third approach compares the revenue generated by each resource unit with the cost of that unit. Profit contribution occurs when the revenue from an input unit exceeds its cost. The point of profit maximization is reached when resource units no longer contribute to profit. All three approaches yield the same profit-maximizing quantity of output. (These approaches will be explained in greater detail later.)

Because profit is the difference between revenue and cost, an understanding of profit maximization requires that we examine both of those components. Revenue comes from the demand for the firm’s products, and cost comes from the acquisition and utilization of the firm’s inputs in the production of those products.

In free markets—and even in regulated market economies—profit maximization tends to promote economic welfare and a higher standard of living, and creates wealth for investors.

Most economists believe that profit maximization promotes allocational efficiency—that resources flow into their highest valued uses.

Overall, the functions of profit are as follows:

• Rewards entrepreneurs for risk taking when pursuing business ventures to satisfy consumer demand.

• Allocates resources to their most-efficient use; input factors flow from sectors with economic losses to sectors with economic profit, where profit reflects goods most desired by society.

• Spurs innovation and the development of new technology.

• Stimulates business investment and economic growth.

There are three approaches to calculate the point of profit maximization. First, given that profit is the difference between total revenue and total costs, maximum profit occurs at the output level where this difference is the greatest. Second, maximum profit can also be calculated by comparing revenue and cost for each individual unit of output that is produced and sold. A business increases profit through greater sales as long as per-unit revenue exceeds per-unit cost on the next unit of output sold. Profit maximization takes place at the point where the last individual output unit breaks even. Beyond this point, total profit decreases because the per-unit cost is higher than the per-unit revenue from successive output units. A third approach compares the revenue generated by each resource unit with the cost of that unit. Profit contribution occurs when the revenue from an input unit exceeds its cost. The point of profit maximization is reached when resource units no longer contribute to profit. All three approaches yield the same profit-maximizing quantity of output. (These approaches will be explained in greater detail later.)

Because profit is the difference between revenue and cost, an understanding of profit maximization requires that we examine both of those components. Revenue comes from the demand for the firm’s products, and cost comes from the acquisition and utilization of the firm’s inputs in the production of those products.

Under any form of imperfect competition, the individual seller confronts a negatively sloped demand curve, where price and the quantity demanded by consumers are inversely related. In this case, price to the firm declines when a greater quantity is offered to the market; price to the firm increases when a lower quantity is offered to the market.

En un sentido estrecho, la gramática sólo estudia las unidades significativas y su combinatoria. Comprende dos partes: la morfología y la sintaxis.

La morfología se ocupa de la estructura interna de las palabras. Su unidad de análisis es el morfema, la unidad significativa mínima. Una palabra como libro no es segmentable en partes que preserven la dualidad entre sonido y significado: es una palabra simple. En cambio, libro-s, libr-ero, libr-ito contienen cada una dos formantes. La morfología detiene su análisis al llegar a la palabra.

La sintaxis estudia la combinatoria de las palabras en el marco de la oración, su unidad máxima. Entre el morfema y la oración, unidades mínima y máxima, respectivamente, del análisis gramatical, se ubican la palabra, unidad compartida por ambas partes, y las unidades intermedias, los sintagmas, construcciones como el libro, mi viejo libro de gramática, muy interesante, lejos de la ciudad, leer detenidamente.

La gramática tradicional centró su estudio en la palabra y su clasificación ("las partes de la oración"), por lo que estuvo más cerca de la morfología que de la sintaxis propiamente dicha. En cambio, en la gramática moderna, fundamentalmente, desde mediados de este siglo, la oración se convierte en latinidad básica cuyos formantes son las unidades intermedias.

La noción clave para la labor del gramático es la gramaticalidad: ésta permite deslindar construcciones (morfológicas y sintácticas) bien formadas de secuencias anómalas (que se representan precedidas por asteriscos: *).

Una palabra tiene estructura interna cuando contiene más de un formante morfológico. Un formante morfológico o morfema es una unidad mínima que consta de una forma fonética y de un significado. Comparemos las siguientes palabras: gota, gotas, gotita, gotera, cuentagotas. Gota es la única de estas palabras que consta de un solo formante. Carece, entonces, de estructura interna. Es una palabra simple. Todas las otras palabras tienen estructura interna. [31]

Los formantes que pueden aparecer como palabras independientes son formas libres. Los otros, los que necesariamente van adosados a otros morfe- mas, son formas ligadas.

Cuentagotas contiene dos formantes que pueden aparecer cada uno como palabra independiente. Es una palabra compuesta.

Gotas, gotita y gotera también contienen dos formantes, pero uno de ellos (-s, -ita, -era) nunca puede ser una palabra independiente. Son formas ligadas que se denominan afijos. Algunos afijos van pospuestos a la base (gota), como los de nuestros ejemplos: son los s u f i j o s . Otros afijos la preceden: in-útil, des-contento, a-político: Son los prefijos. Las palabras que contienen un afijo se denominan palabras complejas.

Del inventario de formantes reconocidos, reconoceremos dos clases:
a. Algunos son formantes léxicos: tienen un significado léxico, que se define en el diccionario: gota, cuenta. Se agrupan en clases abiertas. Pertenecen a una clase particular de palabras: sustantivos (gota), adjetivos (útil), adverbios (ayer), verbos (cuenta). Pueden ser:

- palabras simples (gota, útil, ayer);
- base a la que se adosan los afijos en palabras complejas (got-, politic-); - parte de una palabra, compuesta (cuenta, gotas).

b. Otros son formantes gramaticales: tienen significado gramatical, no léxico. Se agrupan en clases cerradas. Pueden ser:
- palabras independientes: preposiciones (a, de, por), conjunciones

(que, si);
- afijos en palabras derivadas (-s, -ero, in-, des-);
- menos frecuentemente, formantes de compuestos (aun-que, por-que,

si-no).

Entre las palabras no simples consideradas hasta aquí, cada una contenía sólo dos formantes. En otras un mismo tipo de formantes se repite:

- sufijos: region-al-izar, util-iza-ble;

- prefijos: des-com-poner. ex-pro-soviético,
o también formantes de diferentes tipos pueden combinarse entre sí:

- prefijo y sufijo: des-leal-tad, em-pobr-ecer;
- palabra compuesta y sufijo: rionegr-ino, narcotrafic-ante.

En la combinación de prefijación y sufijación, se distinguen dos casos, ilustrados en nuestros ejemplos. En deslealtad, la aplicación de cada uno de los afijos da como resultado una palabra bien formada: si aplicamos sólo el prefijo se obtiene el adjetivo desleal; si aplicamos sólo el sufijo el resultado será el sustantivo lealtad. En cambio, en empobrecer, si se aplica sólo un afijo [32] el resultado no será una palabra existente: *empobre, *pobrecer. Prefijo y sufijo se aplican simultáneamente, constituyendo un único formante morfológico – discontinuo– que se añade a ambos lados de la base léxica. Este segundo caso se denomina parasíntesis.

Para establecer la estructura interna de las palabras, la morfología se ocupa de:

a. identificar los formantes morfológicos;
b. determinar las posibles variaciones que éstos presenten; c. describir los procesos involucrados;
d. reconocer la organización de las palabras.

Una palabra tiene estructura interna cuando contiene más de un formante morfológico.

Un formante morfológico o morfema es una unidad mínima que consta de una forma fonética y de un significado.

De las siguientes palabras: gota, gotas, gotita, gotera, cuentagotas, Gota es la única de estas palabras que consta de un solo formante.

Los formantes que pueden aparecer como palabras independientes son formas libres. Los otros, los que necesariamente van adosados a otros morfemas, son formas ligadas.

Cuentagotas contiene dos formantes que pueden aparecer cada uno como palabra independiente. Es una palabra compuesta.

Gotas, gotita y gotera también contienen dos formantes, pero uno de ellos (-s, -ita, -era) nunca puede ser una palabra independiente. Son formas ligadas que se denominan afijos.

Algunos afijos van pospuestos a la base (gota), como los de nuestros ejemplos: son los s u f i j o s . Otros afijos la preceden: in-útil, des-contento, a-político: Son los prefijos. Las palabras que contienen un afijo se denominan palabras complejas.

Del inventario de formantes reconocidos, reconoceremos dos clases:

a. Los formantes léxicos: tienen un significado léxico, que se define en el diccionario: gota, cuenta. Se agrupan en clases abiertas. Pertenecen a una clase particular de palabras: sustantivos (gota), adjetivos (útil), adverbios (ayer), verbos (cuenta). Pueden ser:
- palabras simples (gota, útil, ayer);
- base a la que se adosan los afijos en palabras complejas (got-, politic-); - parte de una palabra, compuesta (cuenta, gotas).

b. Los formantes gramaticales: tienen significado gramatical, no léxico. Se agrupan en clases cerradas. Pueden ser:
- palabras independientes: preposiciones (a, de, por), conjunciones (que, si);
- afijos en palabras derivadas (-s, -ero, in-, des-);
- menos frecuentemente, formantes de compuestos (aun-que, por-que, si-no).

En algunas palabras no simples un mismo tipo de formantes se repite:

- sufijos: region-al-izar, util-iza-ble;

- prefijos: des-com-poner. ex-pro-soviético,
o también formantes de diferentes tipos pueden combinarse entre sí:

- prefijo y sufijo: des-leal-tad, em-pobr-ecer;
- palabra compuesta y sufijo: rionegr-ino, narcotrafic-ante.

Para establecer la estructura interna de las palabras, la morfología se ocupa de:

a. identificar los formantes morfológicos;

b. determinar las posibles variaciones que éstos presenten;

c. describir los procesos involucrados;

d. reconocer la organización de las palabras.

En la combinación de prefijación y sufijación, se distinguen dos casos, ilustrados en nuestros ejemplos. En deslealtad, la aplicación de cada uno de los afijos da como resultado una palabra bien formada: si aplicamos sólo el prefijo se obtiene el adjetivo desleal; si aplicamos sólo el sufijo el resultado será el sustantivo lealtad. En cambio, en empobrecer, si se aplica sólo un afijo [32] el resultado no será una palabra existente: *empobre, *pobrecer. Prefijo y sufijo se aplican simultáneamente, constituyendo un único formante morfológico – discontinuo– que se añade a ambos lados de la base léxica. Este segundo caso se denomina parasíntesis.

To design the best learning experiences, we need to understand and respect the neuroscience of learning.

The three arts of language provide discipline of mind inasmuch as mind finds expression in language.

Economic profit is the total return a company receives based on all costs incurred to attain that revenue. These costs include all explicit and implicit costs.

Economic profit is used extensively to determine whether a business should enter or exit a market or industry.

A sign is sensible, for it can be perceived by the senses.

Every sign has meaning either from nature or from convention.

A cloud, which is a sign of rain, and smoke, which is a sign of fire, have meaning from nature. A green light, which is a sign that traffic should move, has meaning from convention.

♦ Close your eyes and relax. ♦ Remember a past experience when you felt absolutely triumphant—for example, the day you won a contest or an award. ♦ Hear the sounds in the room: the murmurs of approval, the swell of applause. ♦ See people’s smiles and expressions of warmth and admiration. ♦ Feel your feet on the ground and the congratulatory handshakes. ♦ Above all, experience your feelings, the warm glow of confidence rising within you

help you access calm and serenity. They run the gamut of tastes and styles, so you may find that some raise your hackles while others strongly resonate: A week from now, or a year from now, will any of this matter? This, too, shall pass. Yes, it will. Look for little miracles unfolding right now. Love the confusion. What if you could trust the Universe, even with this?

One of my favorite neuroscience resources, the Wise Brain Bulletin, suggested that a twenty- second hug is enough to send oxytocin coursing through your veins, and that you can achieve the same effect just by imagining the hug.

Nineteenth-century author Napoleon Hill would regularly visualize nine famous men as his personal counselors, including Ralph Waldo Emerson, Thomas Edison, Charles Darwin, and Abraham Lincoln. He wrote: “Every night… I held an imaginary council meeting with this group whom I called my ‘Invisible Counselors.’… I now go to my imaginary counselors with every difficult problem that confronts me and my clients. The results are often astonishing.”

Focus on the present: The next time you find yourself annoyed at some minor thing, remember that letting your mind focus on the annoyance could impair your body language. To counter this, follow the suggestions below: ♦ Sweep through your body from head to toe and find three abilities you approve of. You could be grateful that you have feet and toes that allow you to walk. You might appreciate your ability to read.

Use a third-person lens: For this technique, you’ll need just a few minutes to sit down, a pen, and some paper. ♦ Start to describe your life as if you were an outside observer, and focus on all the positive aspects you can think of. ♦ Write about your job—the work you do and the people you work with. Describe your personal relationships and the good things friends and family members would say about you. Mention a few positive things that have happened today and the tasks you have already accomplished. ♦ Take the time to write down this narrative. Just thinking about it won’t be as effective

♦ Sit or lie down, close your eyes, and set the scene. Where is your funeral being held? What day of the week, what time of day? What is the weather like? See the building where the ceremony is being held. See people arriving. Who’s coming? What are they wearing? Now move into the building and look around inside. Do you see flowers? If so, smell the flowers’ scent heavy on the air. See people coming through the door. What are they thinking? What kind of chairs are they sitting in? What do these chairs feel like? ♦ Your funeral starts. Think of the people you care most about or whose opinions matter most to you. What are they thinking? See them stepping up one after another and delivering their eulogy. What are they saying? What regrets do they have for you? Now think: What would you like them to have said? What regrets do you have for yourself? ♦ See people following your coffin to the cemetery and gathering around your grave. What would you like to see written on your tombstone? ♦ Almost everyone, of all ages, genders, and seniority levels, gets a bit teary-eyed by the end. You might feel moved, touched, stirred. Stay with these emotions as much as you can and aim to get comfortable with them.