Terms in this set (14)
an organization that uses resources to produce goods/services that are sold to consumers (types of firms depend on ownership)
a business owned by one person or one family, easy to form/dissolve, decision making lies in the owner, profits taxed once
a business owned by one or more people (co-owners, partners)/ one or more families, share profits, legally responsible for all debts (on both sides, except in limited partnerships), advantage of specialization - taxes assessed at personal level, disadvantage of unlimited liability, decision making is hard
a legal entity (like a real person) that conducts business separate from the creators (stockholders - owners), share of stocks mean a claim on its assets (most crops are private), limited liability - lose $ invested in shares, existence of corp doesn't depend on existence of its owners, raise $ in different ways (sell bonds) or borrow $ from banks (LLC - limited liability corp), double taxation - earnings, diviends/distributed profits, more complicated to form, all corps have a board of directors
corp + PR hybrid, a contract between the franchisee and franchiser, a person/group uses a firm's name to sell their goods, starts w/ an initial fee, PR/franchise pays % of profits to corp/franchiser - franchisee must follow their guidelines, gets help w/ training, advertising/ other benefits
a firm owned by a group of business associations of consumers or by a group of business associations of producers
Function of Business Firm (FBF) - Identify consumer wants
firms answer what to produce? what do consumers want? who will they produce for?
FBF - Organize Production
how to produce? considering factors of prod. w/ optimization factors to get desired output
FBF - Allocate Revenue
firms spend $ on product development, must decide how to allocate revenues amongst employees, suppliers, investors, research, etc.
FBF - Real Capital Investment
firm determines how to invest original $ + new $, invest in assets - equipment, factory, etc. - which can be sold if firm dissolves
Law of Diminishing Marginal Returns
a firm computes its profits + losses using 3 formulas:
Total Cost (TC) = Fixed Cost (FC) + Variable Cost (VC)
Total Revenue (TR) = Price (P) × Quantity of Good Sold (Q)
Profit/Loss (P/L) = TR - TC
revenue from selling one more unit of product/good, change in total revenue that results from selling additional unit of output - how much should firms produce? what price should they charge?
How to Maximize Profit
if marginal revenue is > or = to marginal cost - firms will produce the next good, if marginal cost is < marginal cost - firms won't produce, maximizing profit is getting the largest possible difference between TR + TC
Law of Diminishing Returns
if additional units of one resource are added to another fixed resource, eventually the additional output will decrease ex. as long as output produced by additional workers × by selling price of good < wage paid to workers, hiring more workers will be good
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