1. The Business Firm. - Sole Proprietorship. -Partnership. -Corporation
The Business Firm - Sole Proprietorship -Partnership -Corporation -private/public -Franchise

2. Sole Proprietorship
Are owned and operated by one individual or one family
+ inexpensive to start up
Owner gets all of the profit
Changes can be made quickly and easily
Limited resources- capital
Owner takes on all of the liability
Short lived
Examples: usually small businesses
The family farm
DeLou’s landscaping
Ric’s furnace repair

3. Partnership Examples: usually professionals
Weber and Mills Tax Service
Johnson and Stein D.D.S.
Cellino and Barnes Attorneys at law
Metternich and Momot Chiropractors
The pooling of the capital and business efforts of two or more people
+ increase in capitol
shared liability
decrease in costs
easy to start
Legally responsible for firm and other partner
conflict with partner
different views on how the company should be run
sharing profits

4. Corporation Example: large companies
Kodak
Xerox GM
Businesses owned by stockholders and managed by officers of the company
+ limited liability
status as a legal entity
easy to raise capitol
life of company
Double taxation
difficult to change things
division of profit
extra regulations
difficult to start up

5. Franchise
A semi independent business that pays fees to a parent company
+ Management training and support
Standardized quality
National Advertising programs
Financial assistance
Centralized buying power
High franchising fees/royalties
Strict operating standards
Purchasing restrictions
Limited Product Line
Examples: Fast Food
McDonald’s
Wendy’s
Tim Horton’s
Mark’s Pizzeria

6. Indicate whether the following are most likely to be proprietorships (PR) partnerships (PA) corporations ( C) or Franchises (F)
Welsh Family Farm
A car manufacturer
Subway
Welsher and Donner law associates
GEICO
Jack Yager’s Dress Shop PR C F PA

7. Advantage of Proprietorships (PR), Corporations ( C), Partnerships (PA), or Franchise (F)?
Ability to raise financial capital
Combined resources without higher taxes
Limited liability of owners
Easiest to start up
No profit sharing
Immortality in the eyes of the law
Training and support C PA PR F

8. Disadvantages of proprietorships (PR), partnerships (PT), corporations ( C), or franchise (F)
Double taxation
Liability for someone else’s actions
Difficulty raising financial capitol
Government Regulations
Royalties
Life span of the company C PT PR F

9. The Business Firm has four functions
Identifying consumer wants
Organizing production
Allocating revenue
Real capitol investment

10. How did 3 Dogs Bakery identify consumer wants?
Do you think Kindertools was as effective at identifying consumer wants?

11. Allocating Revenue is a difficult decision.
This is how you are going to spend the money you bring in from selling your goods and services
Questions to ask are usually do we take it as profit or do we reinvest in the company?

12. Real Capitol Investment
What is Real Capitol
Physical things that aid in the production of a good or service
Machines
Factories
Tools
Computers

13. Work on Case Study The Progressive Bike Shop
Rip off last page and hand in at the end of class

14. Take out your HW

15. Sole proprietorship Franchise Partnership Corporation

16. What is a fixed cost?
Fixed costs (FC) are production costs that do not change with the quantity of output
Can you think of any examples of fixed costs of running an accounting business?

17. What are variable costs?
Variable costs are production costs that change with changes in quantity of output?
What are the variable costs of owning a pizza shop?

18. Fixed Cost FC or Variable Cost VC
A. The cost of property insurance
B. The cost of water used in the production process
C. Monthly mortgage payments on the building
D. Monthly payments on the restaurant’s cooking equipment
E. wages paid to employees
F. The cost of labor used in the production process
G. The cost of electricity used in the production process

19. Total Costs Total costs are the sum of fixed costs and variable costs.
TC= VC+FC

20. What is Average Cost?
Average cost is the total cost divided by the number of units produced.
Example
Total cost $
Total units produced 840
Average cost = 4000/840
Average cost = $50 per. unit

21. Try This Fixed Costs (FC)= $400 Variable Costs (VC)= $250
Total Cost (TC)= ?
Total units produced= 65
Average Costs (AC)= TC/Units Produced
(AC)= per. unit

22. What is Total Revenue? Total Revenue= Price X Quantity
Example 1,000 Pizzas at $10.00 each
TR= $10,000.00

23. What is Profit? Profit (Pf)= Total Revenue (TR)- Total Cost (TC)
TC= FC+VC= 3,000
Pf=7000

24. Examples Fixed Costs = $900/ week Variable Costs = $300/ week
Price = $5.00
Quantity = 1000
TR=
Pf=

25. Try example A
With a partner

26. What are Marginal Costs?
Marginal Costs are the extra costs of producing one additional unit of output.
The law of diminishing returns: beyond some point, output will increase by diminishing amounts as more units of a variable resource (labor) are added to a fixed resource.

27. Example
The Average Cost (AC) is $7.00 to make each pizza up to 100 Pizzas with given equipment and staff. Pizzas are sold at $10.00 each.
To produce more than 100 Pizzas you need to hire more staff, and get a bigger oven. The Average Cost (AC) is a pizza.

28. Try Example B