Why is limited liability so important when firms try to raise large amounts of financial capital? How is this advantage of a corporation tied to a disadvantage of a corporation?
What will be an ideal response?
Limited liability is important in raising large funds because the owners (stockholders) know that the total liability they have connected with the firm is limited to the investment they made in buying the shares of stock. It is easier to get people to buy a portion of the firm when their liability is limited. But, this large group of owners also means that the diverse ownership may make it difficult to monitor the performance of the management team.
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If the long-run average cost curve is U-shaped, the optimal scale of production from society's viewpoint is
A) where maximum economic profit is earned by producers. B) the minimum efficient scale. C) one which guarantees economic profit. D) where firm profit is large enough to finance research and development.
Automatic stabilizers drive changes in
a. the total deficit. b. the cyclical deficit. c. the structural deficit. d. monetary policy. e. both b and c.
Firemen generally are paid higher wages because
a. they are usually highly educated b. they are usually working under riskier conditions c. they are working long and uncertain hours d. both B&C
Demand functions are "homogeneous of degree zero in all prices and income.". This means
a. a proportional increase in all prices and income will leave quantities demanded unchanged. b. a doubling of all prices will not alter consumption decisions. c. prices directly enter individuals' utility functions. d. an increase in income will cause all quantities demanded to increase proportionately.