Stockholder Pros and Cons
Anything of value to which the firm has legal claim.
Asset
Many small retail businesses are this.
Sole Propretorship
The revenue from selling an additional unit of a good
Marginal Revenue
A type of cost that stays the same no matter how many units of a good are produced.
Fixed Cost
A firm owned by one individual
Sole Proprietorship
Stock is sold by this unit.
Share
Give two reasons why some firms prefer to stay small?
Lack of external finance, specialized market or customer base, home-based operation, limited time commitment, etc.
Two questions that firms have to answer.
How much should be produced?
What price should be charged?
A cost that changes with the number of goods produced.
Variable Cost
The three ways to organize a business.
Sole proprietorship, partnership, corporation
Exists when one party to a transaction has information that the other party does not have
Asymmetric Information
Name two ways to measure the size of a firm.
Number of employees, market share, capital employed, and total revenue.
A firm should do this when marginal revenue is greater than marginal cost
Produce
Sum of fixed costs plus variable costs
Total cost
An important decision making body in a corporation; decides policies and goals.
Board of Directors
Tesla, Amazon, Disney
Corporations
There are approximately 3.1 million of these in the United States
The three mathematical equations used to calculate profit or loss.
1. FC + VC = TC
2. P x Q = TR
3. TR - TC = Profit/Loss
Total cost divided by the quantity of output.
Average total Cost
Two reasons a franchise can be successful
Certainty, marketing campaigns, location, convenience, name recognition, standard quality of product
Who said, "Drive thy business or it will drive thee."
*hint: he is a former president
Benjamin Franklin
Provide two reasons why small firms can't survive in some industries.
High expenditure on research and development, diseconomies of scale at low output levels, high start-up costs, need for bulk buying
Who said, "In the business world, the rearview mirror is clearer than the windshield."
Warren Buffet
When fixed costs are equal to total costs
Zero
The main advantage to limited liability in a corporation.
The owner loses only their initial investment if the business is unsuccessful. They do not lose their personal assets to settle any outstanding debts.