Published on 18 Mar 2015
Being able to predict your company’s profit is a very useful tool. In this video, we introduce the third concept you need to maximize profit — average cost. When looked at in conjunction with the marginal revenue and marginal cost, the average cost curve will show you how to accurately predict how much profit you can make!
The usefulness of these tools does not stop there. Sometimes, you can’t make a profit. You’ll have to take a loss. These tools can also show you how to minimize losses, and make decisions on whether a company should enter or exit an industry.
We also define terms such as zero profits and sunk costs in this video.
October 24, 2015
Maximizing Profit and the Average Cost Curve
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“Is it just me? Or are Minnesotans total assholes?”
Swap out “the Twin Cities/Minnesotans” for “Toronto/Canadians” and this article could run in any of Toronto’s alternative newspapers:
The Twin Cities has never been the sort of place where hordes of starry-eyed young people move for fame and fortune. But as it climbs the ranks of every “top 10” list for quality of life, it’s becoming a harder pitch to ignore.
What those lists don’t mention is the frequent insecurity these transplants know well, whispered with confessional despair in wood-panel dive bars after months of missed connections: “Is it just me? Or are Minnesotans total assholes?”
The second-guessing is a common trait. Small-town settlers wonder if they’re just misreading urban chic for frigidity. Transplants alighting from megalopolises like Buenos Aires and Berlin chalk it up to small-city small-mindedness. Folks from the South are quick to blame the isolating cold of northern winters, but that doesn’t explain how those hailing from other Midwest cities have a hard time cracking the icy Nordic shells of native Minnesotans too.
Those born and bred here don’t always see it, but to newcomers we’re not very friendly, at least in a deep friendship way.
It took Jade Ross of Colman, South Dakota, no more than one college party to catch on that “Minnesota Nice” is a trademark best used sarcastically. At 18, when she reported for school at St. Cloud State, everybody talked up the Minnesota Nice phenomena ad nauseum, she says. “I’d never heard of that before, and I didn’t understand why you needed to talk about it,” Ross says. “In South Dakota, we were just nice, and we didn’t need to brag about it.”
At parties she’d describe home as a small farming town of 500. She got responses like, “So do you have … Internet? Do you ride a buffalo to go to school?”
The (vicious) economic model of the music industry
A post by Kristine Kathryn Rusch from a few years ago, talking about the “standard” abuses musicians were subject to under 1990s-era studio contracts:
Those of us who exist on the periphery of the music industry have heard for years that new artists and even established ones can’t make money in the traditional music industry.
I didn’t understand that until I read Jacob Slichter’s So You Wanna Be A Rock ’N Roll Star several years ago. He wrote about a system in which a musician who signed a deal with a major record label could end up owing the label tens if not hundreds of thousands of dollars. He delineated it all out in a long book that showed just how the label ended up taking a naïve artist and putting him into debt.
Slichter said this was why so many rock bands disbanded — because the band itself was a legal entity and as a legal entity it was in hock to the studio. The only way the musicians could continue to perform and try to earn money from their music was to create a new legal entity and abandon the old one. Otherwise, they were working in a kind of indentured servitude.
Think this is just sour grapes from one musician who didn’t make it big? Look at a link that a reader from last week gave me. It’s from a magazine I’ve never heard of called Maximum Rock ’n’ Roll and was written by rock producer named Steve Albini. I’m not so sure how dodgy this website is that I’m sending you to — I don’t know if they violated Mr. Albini’s copyright by reproducing this piece. I’m going to trust that they didn’t, because y’all need to see these numbers.
For those of you who can’t be bothered to check the link, Albini lays out the line-by-line “costs” that the musicians agreed to when they signed their record deal. The musicians received a $250,000 advance. But by the time the album got released and the tour was completed, the advance was gone — and the musicians owed the record label $14,000.
You’re understanding me right. The “standard” contractually negotiated costs that the musicians agreed would come out of their pockets came to $264,000. The only way for the artists to recoup that loss was to sign a new deal with the label, often at lesser terms. If the label even wanted to sign them. (That part is courtesy of Slichter)
How much did the label earn — with the same costs deducted?
$710,000. In 1990s dollars.
Albini also lists how much each “player” made. He includes a producer ($90,000), a manager ($51,000), an agent, ($7500) and a lawyer ($12,000).
He writes, “The band is now ¼ of the way through its contract, has made the music industry more than 3 million dollars richer, but is in the hole $14,000 in royalties. The band members have each earned about 1/3 as much as they would working at a 7-11, but they got to ride in a tour bus for a month. The next album will be about the same, except that the record company will insist they spend more time and money on it. Since the previous one never ‘recouped,’ the band will have no leverage and will oblige.”
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QotD: The role of the family
I don’t follow libertarian family policy (never mind conservative family policy, liberal family policy, or even Shining Path Maoist family policy) too closely, though I know some very smart people who’re involved in it. Anyway, the conversation turned to the claim made by many libertarians, as well as folks like Al Gore (wolfsbane to libertarians), that modern society has changed so much that it is only right and rational that family structure change, too.
Here’s my problem with this sort of thinking, which I don’t think is unreasonable on its face. Some institutions endure because they are, well, enduring.
The whole point of certain institutions is that they are insurance policies against the unknown future (picture G. Gordon Liddy talking about gold, only replace it with “the family”). The phrase “you can always count on family” may not be literally true, but it is more true than “you can always count on your old college roommate.” When times are great, the demands of family (or religion, or good manners, or thriftiness, or a thousand other institutions, customs, and habits of the heart that we can throw under the bulwark of “tradition”) might often seem like too much unnecessary baggage to carry around. But when things hit the fan, family is there in a way that other people aren’t. Not because those other people are bad, but because your family is your family.
But it’s important to keep in mind that the family — or the Bill of Rights, or good manners, whatever — isn’t a catastrophic insurance policy. The value of these institutions is best understood during a time of crisis, but the influence of these institutions is constant, even in times of calm luxury. The fact that these institutions exist forecloses certain options and avenues for reformers who yearn for a blanker social slate.
The family, like marriage, is an institution that predates our Constitution and the very concept of democracy, never mind modernity. That is not to say that it hasn’t evolved and changed or that conservatives should never, ever contemplate further changes and greater evolution. It is simply to say that we should do so carefully, reservedly, humbly, in full knowledge that tomorrow may look as little like today as yesterday did.
Jonah Goldberg, “The Goldberg File” email newsletter, 2011-04-25.
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