ECONOMIC$ $TANDARD: SSEMI4 The student will explain the organization and role of business and analyze the four types of market structures in the U.S. economy. a. Compare and contrast three forms of business organization—sole proprietorship, partnership, and corporation. b. Explain the role of profit as an incentive for entrepreneurs. c. Identify the basic characteristics of monopoly, oligopoly, monopolistic competition, and pure competition.
Marginal Product of Labor The change in output from hiring one more worker Measures the change in output at the margin, where the last worker has been hired or fired Adding another worker increasing production to 7 pizzas per hour. 3 workers can make 5 pizzas per hour What is the marginal product of labor for the 4th worker?
Increasing Marginal Returns Specialization increases output per worker If each person can specialize in a task, they won’t waste time switching from tasks, which will allow them to become more skillful at their assigned task Therefore, each worker can produce more
Diminishing Marginal Returns When adding more workers increases total output, but at a decreasing rate Producing less and less output from each additional unit of labor added to the mix This is a result of limited capital
Marginal product of labor # of workers Beanbags per hour Marginal product of labor - 1 4 2 10 6 3 17 7 23 5 28 31 32 8 -1
Production Costs Fixed Cost – does not change no matter how much is produced; ex: rent, machinery, etc Variable Cost – changes with production (direct relationship); ex: raw materials, some labor Total Cost – Fixed Cost + Variable Cost
Marginal Cost – the additional cost of producing one more unit Marginal revenue (price) = how much you would make off of selling one more unit of a good
How to Find the Best Level of Output Firm’s basic goal: maximize profit Profit = total revenue – total cost To have the biggest profit you would want a big difference b/t total revenue & total cost OR when
Assessment Explain whether each of these expenses of a textile mill is a fixed cost or a variable cost, and why. Repairs to a leaking roof Cotton Food for the mill’s cafeteria Night security guard Electricity
Types of Business Organizations
The Purpose of a Business Organization A business is formed to carry on commercial enterprises and earn a profit. The most common type of business is a sole proprietorship. A sole proprietorship is a business that is owned and managed by a single individual.
Sole Proprietorships This type of business makes up 75% of all businesses in the U.S. They account for 6% of all sales. Examples- Local bakery, bike-repair shop, hair salon, etc.
Advantages of Sole Proprietorships Easy to start Must obtain a business license Must find a place to conduct business. Must register a name Few govt. regulations ex. Health codes, zoning laws, etc. Owner receives all profits Owner has full control of all decisions Easily makes changes
Disadvantages of Sole Proprietorships Unlimited Personal Liability- owner legally responsible for all debts. Limited Access to Resources- Bank unwilling to lend money. All funds come from owner. Lack of Permanence- Sole proprietorships close when an owner dies, retires, loses interest, etc.
Potential for conflict PARTNERSHIPS Advantages Disadvantages Easy to open and close Unlimited liability Few regulations Potential for conflict Access to resources Limited life Joint decision making specialization
TYPES OF PARTNERSHIPS Most common Parents share responsibility General Limited Limited liability Most common Parents share responsibility Every partner is responsible for debts, losses Tradeoff= rewards Limited owners only invest money Not responsible for day to day operations Only can lose money that had been invested All partners are limited Not responsible for others’ mistakes Only certain businesses can be one: medical practices, legal offices and accounting firms