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Business Types and Market Structure

Proprietorship/Sole
Proprietorship/Sole
Definition: a business owned and controlled by one person
Ex: doctors, skilled craftsmen, lawyers, these kinds of people are in a business on their own.
Proprietorship/Sole
people who own and operate their own businesses take pride in their work it makes there quality and efficiency to be much higher resulting in high quality products.
Pros: easy to form, control profits, flexibility, smaller taxes.
Cons: fragile business existence, less of a professional appearance, unlimited liability
Public Corporation
Definition:When someone chooses to sell a stock on the open market
Ex: Toyota, Microsoft, Verizon, these companies all sell stocks on the open market that the public can invest in.
Public Corporation
public corporations rude the burden on small public companies that would prompt innovation, job creation, and economic growth
Pros: Financial benefit from going public, access to capital markets, liquidity strategy, stock as currency.
Cons: Myopic outlook, expensive paperwork, loss of control
Franchise
Franchise
Definition: contractual agreement that allows a parent company to sell the use of its name and merchandise to an independent businessperson
Ex: If you wanted to have your own McDonald’s restaurant you would have to join a franchise, same for a clothing store, and a technology store. These companies are a franchise because they are large businesses, and you need a franchise to have one of your own.
Franchise
Franchises play a vital role in the Franchise businesses make up more than 10 percent of all U.S. businesses that have employees. the more the number of franchises the more jobs in the economy
Pros: Established Brand and Customer Base, Marketing Support, Financial Assistance
Cons: Initial Payout (Franchise Fee and Start-up Costs, Limited Creativity/Flexibility, Locked into Operation by Long-Term Contract
Partnerships
Partnerships
Definition: a business that is owned and controlled by two or more people
Ex: lawyers, accountants and doctors. These are partnerships because two or more people have around 50% control over the business that they own in partner to someone else who usually owns the other half of the company.
Partnerships
partnerships allow different company’s to interact and build a stable place for people to work. These partnerships also create many jobs.
Pros: ab;e to collaborate with different people collectively to create great ideas
Cons: have to share the power if the company and the profit.
Perfect Competition
Definition: the most ideal market situation for consumers
Ex: street vendors, agricultural markets and internet industries. These businesses have perfect competition because there are several similar things being sold and have competing prices.
Perfect Competition
perfect competition says that given the producer and consumer have perfect knowledge it is assumed that they make rational decisions to maximize their self interest which helps their economy as a whole to understand the importance of competition.
Pros: There is no information failure as all knowledge is spread out evenly, Maximum consumer surplus and economic welfare
Cons:No Scope for economies of scale because of the high number of firms in there, Undifferentiated products- all homogeneous. Important in industries like clothes and cars
Private Corporation
Private Corporation
Definition: when someone chooses whom to sell a stock to personally, and chooses not to sell it on the open market.
Ex: Dell, Albertson’s, Fedeilty investments. These businesses privately sell stocks because they are a private corporation.
Private Corporation
Private Corporations are a big part of the economy in such a way that small businesses are the engines of job creation in the united states.
Pros: By going public, the company will improve its financial condition by obtaining money that does not have to be repaid. The company obtains increased prestige and visibility.
Cons: When a company goes public, management loses some of its freedom to act without board approval and approval of a majority of the shareholders in certain matters. Shareholders tend to judge management in terms of profits, dividends and stock prices. This can cause management to emphasize short-term strategies rather than long-term goals.
Cooperatives
Cooperatives
Definition: a business that is owned by the people who use its services.
Ex: Dairy farms, farms and food co-ops. These type of businesses are cooperative because they are owned by people that use its services.
Cooperatives
Cooperative economics is a field of economics that incorporates socialist economics, co-operative studies, and political economy toward the study and management of co-operatives
Pros: The main advantage of purchasing a co-op is that they are often cheaper to buy than a condo.
Co-ops are typically more financially stable.
The instance of foreclosure is rare.
Co-ops are typically going to be a higher owner occupancy rate.
Cons: Most co-ops require a 10 to 20 percent down payment.
The rules for renting your co-op are often quite restrictive.
Because there are a limited amount of lenders who do co-op loans, your loan options are restricted.
Monopoly
Monopoly
Definition: only one business offers a specific product.
Ex: diamonds, Technological, Geographic, Government Monopoly. These fit into the category of monopoly because some services and goods are only sold from one company.
Monopoly
A monopoly contributes to price increases, leads to the creation of inferior products and discourages innovation. Monopolies inhibit free trade and limit the effectiveness of a free-market economy.
Pros: They funnel a high level of profits back to shareholders and local communities. It changes the economies of scale.
Cons: They limit competition, which means prices don’t have to be lowered. Quality doesn’t have to be maintained.
Oligopoly
Oligopoly
Definition: one prominent type of imperfect competition.
Ex: US auto industry, steel industry, gas. These examples represent oligopoly because these companies dominate more than 70% of the industries total output
Oligopoly
When a market is shared between a few firms, it is said to be highly concentrated. Although only a few firms dominate, it is possible that many small firms may also operate in the market. For example, major airlines like British Airways (BA) and Air France operate their routes with only a few close competitors
Pros: Since companies in an oligopolistic market have full control over it, they are capable of deciding prices as per their choice. Though this practice is illegal, it works in favor of these businesses.
Dominant market players usually make long-term profits in an oligopolistic environment
Cons: Setting of prices may be advantageous for the firms, but if done unrealistically, it may prove to be a great disadvantage for consumers.
Creative ideas or plans of small businesses in the oligopolistic market fail to realize because they cannot overcome the control of major market players.
Monopolistic Competition
Definition: market structure in which many firms sell products that are similar but not identical
Ex: Fast food restaurants, coffee shops, soda types. These are monopolistic competition because the products these companies make are similar but have some differences.
Monopolistic Competition
Monopolistic competitive markets are never efficient in any economic sense of the term.Because a good is always priced higher than its marginal cost, a nationalistically competitive market can never achieve productive or allocation efficiency. Suppliers in monopolistically competitive firms will prod
Pros: Because a good is always priced higher than its marginal cost, a monopolistically competitive market can never achieve productive or allocative efficiency. Suppliers in monopolistically competitive firms will prod. Differentiation Brings Greater Consumer Choice and Variety
Cons: They Can be Wasteful — Liable of Excess Capacity, Allocatively Inefficient
Legal Monopoly
Legal Monopoly
Definition: one provider of a good or service
Ex: Postal service, telephone service, water service. These services represent legal monopoly because one provider of the service can be used in rural areas
Legal Monopoly
As the sole providers of a product or service, monopolies have no competition and no price restrictions. Monopolies use patents, mergers, and acquisitions to obtain industry dominance and prevent market entry. If left unmonitored and unregulated, monopolies can adversely affect businesses, consumers and even the economy.
Pros: not many firms in the industry
Cons: little to no innovation
Non-for-profit Corporations
Non-for-profit Corporations
Definition: a special type of corporation that has been organized to meet specific tax-exempt purposes
Ex:Human Right Campaign, Red Cross, Denver Rescue Mission. These services represent a organization that helps people meet specific tax-exempt purposes
Non-for-profit Corporations
By providing employees with a source of income, non-profits, just as for-profits, indirectly stimulate endless other facets of the economy. When people have money, they spend it. They pay mortgages, utility companies and car payments. Discretionary income goes to restaurants, theaters and other luxuries and entertainments.
Pros: Tax exemption/deduction, Eligibility for public and private grants.
Cons: Costs, paperwork,

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