What are the three types of firms? Explain the major advantages and disadvantages of each
What will be an ideal response?
The three main ways of organizing a firm have both advantages and disadvantages:
• Proprietorship. ADVANTAGES—easy to set up; managerial decision-making is simple and rapid; and profits are taxed only once. DISADVANTAGES—bad decisions on the part of the owner are not subject to review; the owner's entire wealth is at stake because of unlimited liability; the firm dies with the owner; and acquiring capital and labor is expensive.
• Partnership. ADVANTAGES—easy to set up; has diversified decision-making so that more than one person's expertise can be utilized; can survive the death or withdrawal of a partner; and profits are taxed only once. DISADVANTAGES—all the owners' wealth is at risk because of unlimited liability; if there are many partners, gaining a consensus about managerial decisions may be difficult; the withdrawal of partner may create capital shortage; labor costs are high compared to corporations; and capital costs can be high.
• Corporation. ADVANTAGES—perpetual life; limited liability for its owners; readily available, large-scale, and low-cost capital; can rely on professional managers rather than the talents of the owners; and reduced costs from long-term labor contracts. DISADVANTAGES—potentially complex management structure may lead to slow and expensive decision-making; and profits are taxed twice, once as corporate profit and once as income to the stockholders.
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Which of the following constitutes a barrier limiting the entry of potential competitors into a market?
a. diseconomies of scale b. an elastic market demand for the product produced by the industry c. control over an essential resource d. a perfectly elastic demand curve
Consider the market for medical doctors. Suppose the opportunity cost of going to medical school decreases for many individuals. Suppose it generally takes about ten years to become a practicing doctor. Holding all else constant, in ten years the equilibrium wage for doctors will
a. increase. b. decrease. c. not change. d. It is not possible to determine what will happen to the equilibrium wage.
If the price elasticity of demand for good A is -4, then a 2% increase in
A. consumer income will result in a 2% decrease in the demand for good A. B. the market price of good A will result in a 8% increase in the quantity demanded of good A. C. consumer income will result in a 2% increase in the demand for good A. D. the market price of good A will result in a 8% decrease in the quantity demanded of good A.
When the Fed increases the quantity of assets it owns, it is said to be engaging in
A. a maturity extension program. B. forward guidance. C. quantitative easing. D. credit easing.