BIG BUSINESS

SSMEI4

Students will explain the organization and role of business while analyzing the four types of market structures

The First Business OrganizationSole Proprietorships

Sole Proprietorships (Small Business)- these are owned and managed by a single individual. Most common form of business in America.

1. Advantages of Small Businesses- a. Easy Start Up- not difficult and many can do

on their ownb. Few Regulations- not controlled by the governmentc. Profit- after taxes they receive all the profitd. Full Control and Discontinue- owned and operated by the individual they can also be

closed whenever the owner wishes as long as there is no debt or taxes owed anyone.

Sole Proprietorships Cont’d…

Disadvantages of Sole Proprietorships-

1. Resources- limited access to both physical and human capital

2. Staying Power- If anything happens to the owner many go out of business.

3. LIABILITY- Personal liability is unlimited, responsible for all debts of the business.

The Second Business OrganizationPartnerships

Partnerships- Three different types

1. General Partnerships- partners share equally in both responsibility and liability.

2. Limited partnership- only one partner is required to be a general partner, or to have unlimited personal liability for the firm.

3. Limited liability partnership- In this form, all partners are limited partners

Partnerships Cont’d…

Advantages of Partnerships-1. Ease of Start Up- no legal documents needed but most create

an article of partnership.2. Shared Decision Making- in well run partnerships each partner brings different strengths to the table.3. Capital- more resources available as each partner brings

assets to the table4. Taxes- The partners pay taxes but the business does not.

Disadvantages of Partnerships-1. General Partners are bound by each others action2. Unless it’s a limited liability, somebody must have unlimited

personal liability3. Conflicts between people working together can lead to

disagreements over how the business is run.

Third Business OrganizationCorporations

Corporation- is a legal entity owned by stockholders

1. Stocks- represent a stockholder’s portion of the company they own.

2. Closely Held Corporation- when stock is sold to a limited number of people.

3. Publicly Held Corporation- stock can be bought and sold on the open market

Advantages of Corporations

Advantages of Incorporation for Stockholders-

1. No personal liability for the company

2. Stocks can be sold for money to others

Advantages of Incorporation for Companies-

1. Potential for growth is the largest

2. Physical Resources- can raise money by selling bonds.

3. Human Resources- can hire the best people available to produce and market their product.

4. Survivability- last for years

Disadvantages of Corporations

Disadvantages of Incorporation-

1. Start Up- very difficult and must have a state license for incorporation to begin.

2. Taxes- corporations pay taxes on their income, Stockholders pay taxes on the dividend paid them by the corporation.

3. Control- managers, board of directors, CEO’s control not stockholders.

4. Regulation- face the toughest out of all businesses

Corporate Mergers

Corporate Mergers-

1. Horizontal Merger- two or more companies combine that compete in the same market and provide the

same goods and services.

2. Vertical Merger- two or more companies combine but are in different stages of producing the same goods and services.

3. Conglomerate- a merger of three or more businesses that make unrelated products.

Multinational Corporations

Multinational Corporations- large corporations that are headquartered in one country with businesses around the world

1. Advantages- they spread technology, products and job opportunities worldwide.

2. Disadvantage- can have too much influence over governments and culture. Will ship jobs to countries to pay the workers there less money than in their own country.

Pure Competition

Pure Competition- a market structure in which a large number of firms produce the same product. (Never Happens)

Four conditions of Pure (Perfect) Competition-1. Buyers and Sellers- the number is unlimited2. Products- Every supplier makes an identical product and supplies enough to meet demand and set price

equilibrium.3. Informed Buyers- have information on the product

and buy it only at equilibrium, sellers have no control over price. PRICE TAKERS

4. Barriers to Entry- Start up costs and technology are not a barrier to entering the market.

Monopoly

Monopoly- a market dominated by a single seller.

1. They take advantage of customers and charge high prices and limiting the supply of a product. They become PRICE MAKERS.

2. They can put barriers up to prevent other players from entering the market.

3. Some can be useful and necessary.

Types of Monopolies

Natural Monopoly- situation in which a market runs more efficiently and cheaper than a lot of smaller companies.

Examples

1.

Technology Monopolies- when a person gets a 20 year patent on a new technology.

1.

Government Allowed Monopolies- when the government restricts competition from rivals. SPORT LEAGUES.

Monopolistic Competition

Monopolistic Competition- each firm makes a product but it is slightly different from others so they have control over prices. (Our World)

1. Entry- very low barriers to get into the market

2. Competition- large number of firms competing in the market

3. Success- earned with Product Branding and Advertising.

Oligopoly Oligopoly- when a few large firms control a market-

very common1. Entry- costs are very high for start ups2. Prices- they control supply and prices3. Interdependence- each looks to the others

for pricing, supply, etc… 4. Competition- goes one of two ways

a. Cooperation- they cooperate on prices and supply (Cartel)

b. Price Wars- they attempt to drive out weak competition from the market

Comparison of Market Structures

Number of firms

Variety of goods

Control over prices

Barriers to entry and exit

Examples

Perfect Competition

Many

None

None

None

Wheat,shares of stock

Monopolistic Competition

Many

Some

Little

Low

Jeans,books

Oligopoly

Two to four dominate

Some

Some

High

Cars,movie studios

Monopoly

One

None

Complete

Complete

Public water

Comparison of Market Structures