Ch. 7: The Firm. Why Firms Exist. A _____________ is an entity that employs resources, or ______________, to produce ________ and ________ to be sold to consumers, other firms, or the government The market guides and coordinates individuals’ actions (invisible hand theory).
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Easy to form and dissolve.
All decision making power rests in one person.
The profit of the proprietor ship is taxed only once.
The sole proprietor faces unlimited liability
Limited ability to raise funds for business expansion
Usually ends with the death of the proprietorAdvantages and Disadvantages of a Proprietorship
Easy to organize
Usually an effective form of business organization in situations where team production involves skills difficult to monitor.
Benefits of specialization can be realized.
Profit of the partnership is the income of the partners and only personal income taxes apply to it.
Partners have unlimited liability
Decision making can be complicated or frustrating.
Voluntary withdrawal by a partner from the firm or the death of a member of the firm can cause the partnership to be dissolved or restructured.Advantages and Disadvantages of Partnerships
The owners of the corporation are not personally liable for the debts of the corporation
Continue to exist even if one or more owners die.
Usually able to raise large sums of financial capital for investment purposes.
The profits are taxed twice
Often subject to problems associated with the separation of ownership from control.Advantages and Disadvantages of Corporations