Asset c corporation d partnership reviewing facts and

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Unformatted text preview: Firm 1 now has only 11 customers and firm 2 has 15. A Pattern Develops If you look at what has been happening in parts (a) through (c) of the exhibit, you will Defining Terms 1. Define: a. sole proprietorship b. asset c. corporation d. partnership Reviewing Facts and Concepts 2. Under what condition will individuals form a firm? 3. The owners of which types of business organizations face unlimited liability? notice a pattern. The two firms located on the opposite ends of the road initially, but then the competition for customers moved them closer toward each other. The competition for customers continues. In the end, it is likely that the two firms will be located next to each other, as shown in part (d). At this point, firm 1 will have customers A–M (13 customers) and firm 2 will have customers N–Z (13 customers)—exactly the number of customers each firm started out with in part (a). What is our conclusion? Simply that similar firms have an incentive to locate near each other. What drives them to this position? The competition for customers. In the Real World? Does our theory hold up in the real world? Often, you will notice gas stations located near each other (perhaps, four at an intersection). In many towns, car dealerships are located in the same vicinity, often next to each other. Also, in many towns you will find a certain area of town where many restaurants locate, right next to each other. If you look at major financial firms, you will notice that many of them are headquartered in New York City. In fact, not only are they in the same city, but in the same neighborhood of the same city (near the lower end of Manhattan). 4. Which type of business organization accounts for the largest share of total business revenue? 5. Why would a company make a boss (monitor) a residual claimant of the firm? Critical Thinking 6. Do you think the initial fee for all franchises (McDonald’s, Burger King, Play It Again Sports, and so on) is the same? Why or why not? 7. Do you agree or disagree with Milton Friedman’s position on the ethical and social responsibility of business? Explain your answer. Applying Economic Concepts 8. If the face value of a bond is $10,000 and the coupon rate is 5 percent, what is the annual payment to the bondholder? Section 1 About Business Firms 171 07 (154-185) EMC Chap 07 11/17/05 5:14 PM Page 172 Focus Questions What are fixed costs? What are variable costs? What do total costs equal? How do we compute fixed cost, variable cost, average total cost, and marginal cost? Costs Key Terms fixed cost variable cost total cost average total cost marginal cost Fixed and Variable Costs fixed cost A cost, or expense, that is the same no matter how many units of a good are produced. variable cost A cost, or expense, that changes with the number of units of a good produced. total cost The sum of fixed costs plus variable costs. All businesses have costs, but not all costs are the same. For example, suppose Maria Torres owns a business that produces a certain kind of toy. In her business, Torres needs a plant, or fac...
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This document was uploaded on 01/16/2014.

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