Morning: take your own money and either
- buy a factory (that is built in the morning so it can be used in the afternoon) with your money plus a bank loan
- or put your money in the bank
- if you built, get PQ - VC(Q) - (loan plus interest on loan)
- else get (your money plus interest on your money)
- spend the money you have on wine and bread and watch sunset as world ends.
NOTE: you cant build the factory in the afternoon--it is fixed. And you cant avoid debt payment if you built
Relation to Profits
p = P Q - VC(Q) - (loan plus interest) - (your money plus interest)
FC is (loan plus interest) + (your money plus interest)
is: P Q - VC(Q) - (loan plus interest)
Zero economic profit is a normal business profit
Long and Short Run.
There once was a beer distributor that came upon hard times and accused another beer distributor of doing illegal things to ruin its business. An economist was consulted and reasoned as follows: The amount of money the beer distributor was making was not its profits. Two things were missing: the building was owned by the owners of the business and could be rented instead of being used for the distributorship. the owner and his family could work somewhere else, so their wages should be deducted from the companies profits. When one made these adjustments it appeared that the distributorship was worth nothing even before the competitor arrived on the scene. I personally know of two more essentially identical stories, one involving a small pharmeceutical company and another a furniture factory.