My interpretation that the time discount rate/rate of return we naturally apply in evaluating both present cost and present value is our time preference rate now, rather than some retrospective or prospective average, might seem counterintuitive.
I propose it, even so, as the “time discount rule”.
Analogy to the Firm
I follow convention by treating all transfer out as compensated by actual or imputed revenue. The part exhausted in taste satisfaction gets imputed revenue paid by the consumer satisfied. Not all revenue compensates transfer out, as revenue is usually defined as sales proceeds against which prior outside claims must be satisfied first. These are typically for labor and supplies in the case of the firm. Chapter 6 gave the
logic in word equations. It begins with
P-P.=P.» (A3.1)
where p isrevenue, p. is prior claims and p, is “earned revenue” as a residual.
Earned revenue, also called gross realized output, is thus remaining share of overall revenue earned by the firm or other entity that performed the sales, collected the
proceeds, and paid the outside claims on them.
What the the firm or other contributor gives up to earn the earned revenue is the sum of its realized output Xs and its recovered decapitalization D,. Remember
from (A1.4) that D, includes any pure consumption realized by the owner of the
source asset, although that could not apply where the owner is taken as a firm. The sum of Y, and D, gives its gross realized output. Then
Y gross=p,=Y,+D,, (A3.2)
where Y gross is gross realized output. In Chapter 6, I also called Y gross or p,
“gross positive cash flow”. All mean the same. | will usually leave out the notation
APPENDIX A: The Argument in Notation 3/7/16 8
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