Chp 6 Flashcards
Exam 2 (31 cards)
Define Firm -
an organization that converts inputs (such as labor, materials, and capital) into outputs (the goods and services it sells).
Give a(n) example(s) of a firm.
U.S. Steel combines iron ore, machinery, and labor to create steel
A local restaurant buys raw food, cooks it, and serves it
A landscape designer hires gardeners and rents machines, buys trees and shrubs, transports them to customer homes, and supervises the project.
What is another name for the “private sector”?
for-profit private sector
Define (for-profit) private sector -
firms owned by individuals or other nongovernmental entities whose owners try to earn a profit
Define public sector -
firms and organizations that are owned by governments or government agencies
T/F: In almost every country, the public sector contributes the most to the gross domestic product (GDP).
False
private sector contributes most
Give an example of a public sector firm:
National Railroad Passenger Corporation (Amtrak)
The armed forces
The court system
Most schools, colleges, and universities
Define nonprofit or not-for-profit sector -
organizations that are neither government-owned nor primarily intend to earn a profit
Give an example of a nonprofit firm:
Greenpeace
Alcoholics Anonymous
Salvation Army
Many other charitable, educational, health, and religious organizations
T/F: Organizations in the not-for-profit sector are typically pursuing social or public interest objectives.
True
List the three primary legal forms of organization:
- Sole proprietorship
- General partnership
- Corporation
Define sole proprietorships -
Firms owned by a single individual
Define partnerships -
Businesses jointly owned and controlled by two or more people operating under a partnership agreement.
Define corporations -
Are owned by shareholders, who own the firms share(/stock)
Owners have limited liability
Define limited liability -
Corporate owners personal assets of corporate owners cannot be taken to pay a corporations debts even if it goes into bankruptcy
Unlike in a typical sole proprietorship or partnership, the owners of a corporation have ____.
limited liability
Give the equation for profit (π):
π = R - C
profit = revenue - cost
Give the equation for revenue:
R = pq
R = price * quantity
Cost is what the firms pays for __a__, __b__, and other inputs
a) labor
b) material
Are firms with limited liability likely to be larger than other firms? Why?
Yes, they are typically larger because limited liability allows firms to raise more funds
Efficient production is…
a necessary but not sufficient condition for profit maximization
List the three broad categories of inputs:
1) Capital services (K)
2) Labor services (L)
3) Materials (M)
Define capital services (K)
use of long-lived inputs such as land, buildings (factories or stores), and equipment (machines and trucks)
Define labor services (L) -
Hours of work provided by managers, skilled workers (architects, economists, engineers, plumbers), less-skilled workers (custodian, construction laborers, assembly-line workers)
