Professional Documents
Culture Documents
In a perfectly
I
f tl competitive
titi market,
k t no
firm realizes economic profits (rents).
IBM
$2,541
$4,490
$4 490
Microsoft
$(5,525)
$3,776
$2,956
General Motors
Accounting Profits
Economic Profits
Tobins Q
Ratio of a firms market value to its asset replacement value
Directly measures rents above those to physical inputs
Difficult to calculate because it requires knowledge of assets
replacement value
An Industry
S1
An Industry
S1
P1
D
Q1
An Industry
A Firm
S1
P1
MC
AC
P1
D
Q1
10
An Industry
A Firm
S1
P1
MC
AC
P1
D
Q1
q1
11
= P1q1 - c(q1) cf
/ q1 = (P1q1 - c(q1) cf )/ q1 = 0
(q1) = 0
P1 cc(q
P1 = c(q1) = MC
12
An Industry
A Firm
S1
P1
MC
AC
P1
D
Q1
13
An Industry
A Firm
S1
P1
MC
AC
P1
D
Q1
q1
14
An Industry
A Firm
S1
P1
MC
AC
P1
D
q1
Q1
15
An Industry
A Firm
S1
P1
MC
AC
P1
D
Q1
q1
16
An Industry
A Firm
S1
S2
P1
MC
AC
P1
P2
D
q1
Q1 Q2
17
An Industry
A Firm
S1
S2
P1
P2
MC
AC
P1
P2
D
Q1 Q2
q2 q1
18
An Industry
A Firm
S1
S2
P1
P2
MC
AC
P1
P2
D
Q1 Q2
q2 q1
19
20
10
Facts:
risk
Average industry returns vary even after controlling for risk.
Returns among companies within industries vary even more.
Density
Returns
21
22
11
Schumpeterian Rents
Ricardian Rents
Monopoly Rents
((Dynamic
y
Capabilities
p
View))
S
MC 1MC 2
AC 2
AC 1
D
q1 q2
-Barriers to entry
-Industry structure matters
-Barriers to imitation
-Firm structure matters
Monopoly Rents
S
S
D
Q
-Barriers to entry
-Industry structure matters
12
Ricardian Rents
MC 1MC 2
P
AC 2
AC 1
q1 q2
-Barriers to imitation
-Firm structure matters
Schumpeterian Rents
(Dynamic Capabilities View)
13
27
14