micro 4 - Nate Neroni Chapter 4 1 The first statement...

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Nate Neroni Chapter 4 1. The first statement refers to functional distribution of income and the second statement refers to personal distribution of income. 2. 3. A plant is a physical establishment. A firm is a business organization that owns and operates plants and an industry is a group of firms that produce the same or similar products. Firms may be vertically integrated, meaning that they own plants that perform different functions in the various stages of the pproduction process. Horizontally integrated firms contain several firms performing the same function. A conglomerate is a firm that has plants that produce products in several industries. I recently made a purchase from pepsi which is a horizontally integrated firm. 4. The three forms are sole proprietorship, partnership, and corporation. Sole proprietorship is the most prevalent in terms of numbers. This is because they r so easy to set up and organize. The most dominat form of business is a corporation. The major advantage of corporations was that they can finance through the selling of stocks and bonds. Also, the corporations can provide limited liability. 5. The principal agent problem is when the managers of the corporations hired to represent the interest of the stockholders pursue their own objectives to the detriment of the objectives of the principals. Corporations tried to solve this problem by providing a substantial part of exectutive pay either as shares of the firms stock or as stock options.
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