CHAPTER 3 BUSINESS ORGANIZATIONS I o BUSINESS ORGANIZATIONS

CHAPTER 3 BUSINESS ORGANIZATIONS

I. o BUSINESS ORGANIZATIONS A. THREE TYPES: 1. PROPRIETORSHIP 2. PARTNERSHIP 3. CORPORATION

B. PROPRIETORSHIP o o o OWNED BY A SINGLE PERSON MOST COMMON TYPE OF BUSINESS SMALLEST IN SIZE BUT RELATIVELY THE MOST PROFIT

STRENGTHS OF A PROPRIETORSHIP o o EASY ENTRY EASY MANAGEMENT OWNER GETS ALL PROFIT BUSINESS IS EXEMPT FROM INCOME TAX

WEAKNESSES OF A PROPRIETORSHIP o o o UNLIMITED LIABILITY DIFFICULT TO RAISE CAPITAL SIZE – EFFIENCY LIMITED MANAGEMENT LIMITED LIFE OF THE COMPANY

C. PARTNERSHIP o o MAKES UP 7% OF ALL BUSINESSES MAKE ONLY A SMALL FRACTION OF SALES AND OR PROFITS

STRENGTHS OF A PARTNERSHIP o o EASY ENTRY EASE OF MANAGEMENT EASIER TO ATTRACT CAPITAL MORE EFFICIENT - SPECIALIZED

WEAKNESSES OF A PARTNERSHIP o o o EACH PARTNER SHARE IN THE LIABILITY AND ACTIONS OF THE OTHER OFTEN A CONFLICT OCCURS BETWEEN THE PARTNERS MUST SHARE PROFIT

D. CORPORATIONS o o o 90% OF ALL BUSINESSES ORGANIZED BY LAW WITH THE RIGHTS OF AN INDIVIDUAL MUST HAVE A CHARTER STOCKS ARE SOLD ( SHARES OF OWNERSHIP) DIVIDENDS ARE PAID OUT FROM PROFIT

STRENGTHS OF A CORPORATION o o o EASY TO RAISE CAPITAL THROUGH SHARES OR STOCKS LIMITED LIABILITY SPECIALIZATION UNLIMITED LIFE EASE OF TRANSFERING OWNERSHIP OR MANAGEMENT

WEAKNESSES OF A CORPORATION o o o DIFFICULT TO START OWNERS HAVE LITTLE INPUT BUSINESS IS RUN BY A BOARD OF DIRECTORS MORE GOV’T REGULATIONS DOUBLE TAXATION

Maximizing Profits o Businesses adjust their output so they continue to earn the greatest profit o Profit – the money a business has left after paying its costs Total Revenue minus Total Cost

5 Important Cost Concepts o o Fixed costs – do not vary called overhead costs rent, interest on borrowed money Variable costs – change as output changes labor, raw materials, power

o o o Total cost – sum of fixed and variable cost at each output level Average total cost – total cost divided by the output level Marginal cost – the additional cost of producing one more unit

Revenue concepts o o Total revenue – Price multiplied by output Marginal revenue – the money received for selling one more product

Max Profit o Maximum Profit – the highest profit a business can make, it is not always at maximum operations A business will maximize it’s profit by continuing to expand production as long as marginal revenue exceeds marginal cost

CHAPTER 14 SECTION 1 AND 2

II. BUSINESS CYCLES o o o EXPANSION – UPWARD GROWTH TREND PEAK – HIGHEST POINT RECESSION – DOWNWARD GROWTH TREND FOR MORE THAN 6 MONTHS TROUGH – BOTTOMING OUT DEPRESSION – AN EXTENDED FALL USUALLY MORE THAN 18 MONTHS

BUSINESS CYCLE

III. THE GREAT DEPRESSION o o o OCTOBER 29, 1929 THE GDP FELL ALMOST 50% FROM 1929 TO 1933 THE UNEMPLOYED ROSE 800% THE AVERAGE WENT FROM 55 cts PER HOUR TO 5 cts PER HOUR MANY BANKS CLOSED

IV. UNEMPLOYMENT o PEOPLE AVAILABLE FOR WORK AND ACTIVELY SEEKING WORK

A. TYPES OF UNEMPLOYMENT o o FRICTIONAL – BETWEEN JOBS STRUCTURAL – CHANGES IN THE WORK FORCE CYCLICAL – CHANGES IN THE BUSINESS CYCLE SEASONAL – CHANGES IN WEATHER