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Unformatted text preview: sert if he
did have to “punch in” (using a time clock)?
1:07 P.M. Uri has a hot dog stand in
Manhattan. Each day he sells between 300 and 400 hot
dogs for $3 each. He just sold a hot dog to one of his
regular customers, Sam. As Sam was paying for his hot
dog and drink, he says, “You know, Uri, I bet you’d sell a
lot more hot dogs if you charged $2.50.” Uri just looks at
Sam and says, “It’s not about selling more hot dogs.”
• If it’s not about selling more hot dogs, then what is
it about? 157 07 (154-185) EMC Chap 07 11/17/05 5:13 PM Page 158 Focus Questions About Business
Firms Why do business firms exist?
What is a sole proprietorship?
What is a partnership?
What is a corporation? Key Terms
stockholder Why Do Business Firms
Exist? business firm
An organization that
uses resources to produce goods and services
that are sold to consumers, other firms, or
the government. Business firms are organizations that use
resources to produce goods and services that
are sold to consumers, other businesses, or
the government. Businesses typically are
formed when someone has an idea about
how he or she can earn profits by producing
and selling a good or service. While many
new businesses begin with just one person,
most businesses exist because people working
together can produce more than the sum of
what individuals working alone can produce.
Suppose 10 individuals each fish for a living. Each day each person catches 100 fish.
The daily sum of fish caught by these 10
individuals is therefore 1,000 fish. One day
one individual says to the others, “Instead of
fishing alone, why don’t we form a team and
fish together? We can specialize in doing different things. One person will make the nets,
another person will navigate the boat, some
people will cast the nets, and so on. I think
that if we work together—if we form a team,
so to speak—we will be able to catch 2,000
fish a day.” 158 Chapter 7 Business Operations asset
board of directors
franchisee Let’s suppose this person is correct. Ten
people working together can catch more fish
(2,000) than the sum of these 10 people
working alone (1,000 fish). This would be
reason enough for the people to form a
team. Another name for this team is a business firm. A business firm of people working
together can be more effective than a group
of people all working individually. Why Are Bosses Necessary?
Business firms need bosses and employees: people who give the orders and people
who carry out the orders. Why are businesses structured this way? Why doesn’t
everyone have an equal say in what happens
in the firm? To answer this question, let’s
return to our team of fishers.
Suppose that our 10 fishers agree to form
a firm and fish together each day. They also
agree to split their catch evenly among the
10 of them. If they catch 2,000 fish a day, for
example, each person will get 200 fish to
sell. Each fish sells...
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This document was uploaded on 01/16/2014.
- Winter '14