Econ 101 Mi Ch. 7

Front 1

firms

Back 1

specialized organizations that buy resources from households and other firms to produce goods or services for sale to costumers

Front 2

production

Back 2

transforms inputs into outputs (goods or services) that are more valuable in form, lace, possession, or time

Front 3

"more valuable" means that the goods ultimately generate ....

Back 3

greater consumer utility

Front 4

short run

Back 4

period in which the amount of at least one resource of fixed and firms can neither enter or exit the market

Front 5

long run

Back 5

period of sufficient duration for all feasible resource adjustments to any event to be completed, including entry into and exit from the market

Front 6

firms that produce several types of goods are called ...

Back 6

diversified

Front 7

giant, multiproduct firms that operate plants in several industries are called...

Back 7

conglomerates

Front 8

An industry is composed of...

Back 8

all firms competing in the same market

Front 9

horizontally integrated

Back 9

firms that are operating at a number of sites using similar methods to produce the same goods or services, e.g. McDonald's

Front 10

vertically integrated

Back 10

firms that operate at different production levels within an industry
e.g. steel producers -- operate mines, smelting plants, mills for producing rolled steel, and fabrication plants

Front 11

To succeed, a firms's production and management teams must do what 2 things?

Back 11

reduce transaction costs and exploit economies of scale and scope

Front 12

economies of scale

Back 12

economies of scale in production or distribution occur when average costs decline in the long run as a firm expands its productive and distributive capacities

Front 13

economies of scope

Back 13

occur when a firm realizes lower costs by producing or distributing multiple products which utilize the same technologies o marketing and distribution networks

Front 14

sole proprietorship

Back 14

a firm owned and operated by one individual

Front 15

partnerships

Back 15

businesses formed by 2 or more people combining their resources

Front 16

corporations

Back 16

firms sanctioned by state laws and considered legal entities separate and individual from their owners

Front 17

limited liability

Back 17

owners of a corporation cannot lose more than they paid for stock, and other assets are not jeopardized

Front 18

advantages of sole proprietorship

Back 18

1) easy to organize
2) simple to control
3) offers freedom of operation
4) not subject to much government regulation

Front 19

disadvantages of sole proprietorship

Back 19

1) difficult to acquire funds (capital) for expansion
2) lacks permenance
3) subject to unlimited liability
4) makes owner perform all management functions

Front 20

advantages of partnership

Back 20

1) easy to organize
2) makes greater specialization of amnagement possible
3) makes securing financial resources easier than in sole proprietorship (pooling of funds)
4) subject to limited regulation

Front 21

disadvantages of partnership

Back 21

1) prone to disagreements by division
2) ends automatically with death or withdrawal of one partner
3) subject to unlimited liability
4) subject to limited financial resources

Front 22

advantages of corporations

Back 22

1) capable of raising large amounts of capital through sale of stocks and bonds (but bank loans dominate financing)
2) limits liability of stockholders
3) stable and permanent, a legal entity (person) all its own
4) allows employment of specialized management personnel

Front 23

disadvantages of corporations

Back 23

1) subject to considerable government regulation
2) burdened by heavy taxes and organizing costs
3) subject to double taxation of corporate income and dividends
4) separates ownership and control (principal-agent problem)

Front 24

consumer cooperatives

Back 24

share savings achieved by buying in quantity

Front 25

financial intermediaries

Back 25

channel people's savings to investors in economic capital

Front 26

common stock

Back 26

provides holders with shares of ownership in a corporation

Front 27

Maximizing utility may be inconsistent with...

Back 27

maximizing tangible income (the power to purchase goods)

Front 28

standard economic assumption used to analyze behavior of firms

Back 28

profit maximization

Front 29

explicit costs

Back 29

require outlays of money

Front 30

implicit costs

Back 30

the opportunity costs of resources the firm's owner makes available for production with no direct cash outlays

Front 31

economic costs

Back 31

economic costs of production include both explicit and implicit costs

Front 32

economic profit

Back 32

only occurs when a firm's revenue exceeds all costs, including explicit and implicit costs

Front 33

implicit costs should always be considered in...

Back 33

production costs

Front 34

principal-agent problem

Back 34

arises when the agent pursues personal goals that conflict with the principal's contractual rights

Front 35

A key to success as an executive is to be relatively ______ than your competitors.

Back 35

more efficient/less inefficient