Economic Resonance 3: Simplified Model of a Corporation

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Simplified Model of a Corporation

We present a very simplified model of a corporation in Figure #1. It illustrates how capital flows from sales into production which includes purchase of materials and components, and pay to labor. (Equipment could also be included here.)

Simplified Model of Corporation © 2015 jmmxtech

Simplified Model of Corporation
© 2015 jmmxtech

There is also reinvestment from the company when required.

Product flows from production to sales, and revenues from sales flows in, driving further production. A portion of revenues also goes to profits that can:

  1. Fund new investment in production,
  2. Be retained, or
  3. Distributed to shareholders via dividends or share repurchase.

Obviously, a tremendous amount of detail is overlooked here, but we believe it covers the essential economic flow for our discussion.


Fig. 2 - Simplified Model of Corporation - 2 © 2015 jmmxtech

Fig. 2 – Simplified Model of Corporation – 2
© 2015 jmmxtech

.

In Figure #2, we simplify even further by collapsing the Sales layer as this is not relevant to our discussion either.

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