1. Chapter 8 & 7 Types of Businesses & Market structures

2. Decision-making and managerial functions Other characteristics
Sole Proprietorship
Partnership
Corporation
Owner
One owner
Two or more owners
Owned by shareholders
Decision-making and managerial functions
Quick
Pride in ownership
Slower than proprietorship
Board of Directors makes decisions
Debt liability
unlimited
limited
Advantages
-easy to form
-small amounts of capital
-Owner gets all the profits
-owner has all the control
-fairly easy to organize
-access to more capital
-shared responsibility and decision-making
-unlimited life
-access to capital- stocks and bonds
-ownership separate from management
Disadvantages
-limited life
-total responsibility
-high failure
-hard to raise additional capital
-high failure rate
-full responsible for the acts of all partners.
-more gov’t regulation
-double taxation(shareholders who receive dividends and the earnings of the business both pay taxes)
-slow decision-making
-no pride in ownership
Difficulty and expense of a charter.
Other characteristics
-most common type of business 73%
- 6% of sales
-least common type of business 8%
-4% of sales
Limited partner: investor only
-19% of businesses
-90% of all sales
Closed corporation: stock not traded on open market.

3. Unlimited liability- requirement that an owner is personally and fully responsible for all losses of a business.
Corporations are recognized as separate legal entities with all the rights of an individual.
Corporations file for permission to form from the national or state government, which grants a charter specifying the number of shares of stock that may be sold.
Stock may be common or preferred.
In a franchise, the franchisee rents or leases the name, business profile, and way of doing business from the owner, or franchisor.
Advantages to the franchisee include national advertising, instant access to a successful product line, and professional advice and training when needed.
Advantages to the franchisor include the ability to expand the business without excess financial risk or liabilities, the income brought in by the initial franchise payment and monthly royalty fees, and a franchisee who is highly motivated to make the franchise work.

4. Total cost is the sum of fixed and variable costs.
The costs that an organization incurs even when there is little or no activity are fixed costs, or overhead. Fixed costs are things like taxes, rent or mortgage, salaries, phone bill.
Variable costs are usually associated with labor and raw materials and change with the business’s rate of operation or output.
Total cost is the sum of fixed and variable costs.
Marginal cost is the extra cost incurred to produce one more unit of output.
Finding Marginal Cost
The costs that an organization incurs even when there is little or no

5. Depreciation is a noncash charge for the general wear and tear on capital goods.
A company’s cash flow is a comprehensive measure of its profits because it represents the total amount of after-tax income generated by the company operations.
Reinvesting cash flow into a business allows the business to produce new or additional products, which may generate additional sales and even larger cash flow.
Merging is a combination of two or more businesses to form a single firm.
The two types of mergers are horizontal ( same kind of product) and vertical mergers (combining firms in different steps of manufacturing and marketing).
Reasons for merging include faster growth, synergy, economies of scale, diversification, elimination of rivals, or changing or losing a corporate identity that is associated with errors or problems.
Conglomerates are firms that have at least four businesses that make unrelated products, none of which is responsible for a majority of sales.
Multinational corporations can move resources, goods, services, and financial capital across national borders.

6. Start-up incubators are places within states and universities where potential entrepreneurs can get training in accounting, engineering, and managerial skills, as well as potential financing.
Venture capitalists lend investment funds to new or unproven businesses in exchange for a share of ownership (equity).
Angel investors are people who lend start-up money informally and are typically more interested in helping the individual survive than in getting a substantial return on their investment.
Crowdfunding, or crowdsourcing, involves using social networking to appeal to potential investors.
Nonprofit organizations promote the collective interests of their members instead of seeking financial gain for the owners.
Community organizations such as schools, churches, hospitals, welfare groups, and adoption agencies are often legally incorporated to take advantage of unlimited life and limited liability.
Three types of cooperatives (nonprofit association performing economic activities to benefit its members) are consumer, service, and producer cooperatives.

7. The Four Market Structures
Market structure: describes how competitive specific industries are.
Characteristics
Monopoly
Perfect Competition
Competitive Monopolies
Oligopolies
Number of Buyers
many
Many
Number of Sellers
one
few
Product or Service
Well-defined; no good substitute
Standardized; many substitutes
Similar, but differentiated
Brand-name loyalty
May be differentiated or very similar
Price
Monopolist controls price
No company can control price; price set by the market
No single firm can control price
Each company can exert some price control
Ability to dominate market short-term and long-term
Can dominate market both short-term and long-term
Can not dominate market either short-term and long-term
Short term possible, long-term not possible
Can partially dominate market both long-term and short-term
Opportunity for new businesses to enter market
Non or very little
Easy for new producers to enter the market
Relatively easy
Very difficult
Example
Public utilities
agriculture
Electronics , cell phones and clothing
Automobiles
Breakfast cereal and airlines

8. The five main causes of market failures are:
Types of Market Failures
A market fails when any of the requirements for a competitive market ceases to exist.
The five main causes of market failures are:
Not enough competition
Not enough information
Resources that cannot, or will not, move
Too few public goods
Externalities ( economic side effect that affect an uninvolved third party) or spillovers

9. The Sherman Act of 1890 was the first American law against monopolies.
Ensuring Competition
The government can help maintain competitive markets by breaking up monopolies, expanding laws against them, or regulating their activities.
The Sherman Act of 1890 was the first American law against monopolies.
In 1914, the Clayton Antitrust Act outlawed price discrimination, and the Federal Trade Commission Act set up the Federal Trade Commission to help stop unfair business practices.
Some monopolies, such as public utilities, are beneficial and should not be broken up.

10. MONOPOLIES
geographic monopolies: by circumstances- only one in the area.
Natural monopolies: require large capital investments, wasteful to have more than one.
-regulated by government.
Ex.) Time Warner Cable and Central Hudson
Temporary monopolies: Patents and copyrights.
Technological monopolies: ownership or control of the manufacturing method, process, or other scientific method.
Government monopoly: owned and operated by the government
(public good) i.e: U.S. Post office, town water, sewers and national armed services.

11. Competition, Consumer Protection, and Regulation
Transparency and public disclosure help ensure that consumers have adequate information to make decisions.
The Consumer Financial Protection Bureau (CFPB) was established in to oversee and guide the financial lending industry.
Zoning ordinances are examples of government regulations at the local level.