7.1 What Are Firms?

Question 1

6 types of firms

Answer 1

1-A single proprietorship
2-An ordinary partnership
3-The limited partnership (general and limited)
4-A corporation (private and public)
5-A state-owned enterprise (Crown corporations)
6-Non-profit organizations

Question 2

name for firms that have operations in more than one country?

Answer 2

multinational enterprises (MNEs)

Question 3

what is financial capital?

Answer 3

The money a firm raises for carrying on its business. What a firm uses to buy physical capital.

Question 4

define equity?

Answer 4

when a corporation acquires funds from its owners in return for stocks, shares, or equities, which are basically
ownership certificates.

Question 5

Advantages of equity for investors?

Answer 5

1-hope the firm gains in value (speculative value)
2-pays dividend

Question 6

A)Advantages of debt for investors?
B)disadvantages of debt for investors?

Answer 6

A)1-Get interest+principal (if the firm doesn’t go bankrupt)
2-Less risky than equity
B) 1- no controls over the firm
2- no speculative value

Question 7

Find the two key assumptions
about firm behaviour?

Answer 7

1-Firms are assumed to be profit-maximizers
2- Each firm is assumed to be a single, consistent, decision-making unit

Question 8

Is it Socially Responsible to Maximize Profits? 2 views

Answer 8

1-Unadorned capitalism/goal of profit maximization does not serve the broader public interest.
2-Goal of maximizing profits benefits customers and their employees, and leads to innovation, which improves living standards.