Name:______________________________
Date:__________________
Review Sheet: Business Types
1. Natural monopoly
a. A single firm provides all the output
b. Most efficient market because one large firms supplies all the output.
2. Oligopoly
a. A few large firms dominate the market
b. 2-4 firms provide most of the output
3. What are some differences between partnerships and sole proprietors?
a. It is easier for a partnership to borrow money and hold good employees
i. They have more personal stability and access to more money.
4. General Partnership
a. Who is responsible if it fails?
i. General Partnership—both partners have equal responsibility in the company (family owned
businesses)
5. Sole Proprietor
a. What are some disadvantages? Advantages?
b. Advantage: least regulated form a of business, easy to start, fast moving, create own hours
i. Disadvantage: Unlimited liability; Lack of permanence, total responsibility
6. What are some conditions for perfect competition? – same as 14
7. What are start up costs?
a. Money needed to begin a company or business
b. Internet has greatly reduced start up costs
8. Business Franchise
a. A company with branches nationwide
9. Assets
a. Money and valuables a company owns
10. What are characteristics of a corporation?
a. Less personal liability
b. Multiple shareholders/owners
c. Very heavily regulated
d. Only responsible for your initial investment
11. What is non price competition?
a. Give examples
i. Trying to increase sales without lowering price.
ii. Ex: different textures, different styles, advertising, changing physical characteristics, moving
your location etc.
12. Patent – why are they given?
a. Patent: giving monopoly power for a limited amount of time
b. Given to reward inventor/innovator and to allow them to further research a product/good without
competition.
13. What is monopolistic competition?
a. Examples
b. Many companies selling similar but not identical products.
c. If they charge too much for their good, consumers will purchase a rival good.
d. Typically see profits in the short run but need to continue innovating in order to always see profits.
14. What is perfect competition? Who controls the prices?
a. Many buyers and sellers in the market
b. Buyers and sellers are well informed about the goods
c. Low/no barriers of entry
d. Provide nearly identical products
e. They have no control over prices
15. What is a commodity?
a. Examples
i. An economic good; typically a product of agriculture or mining
16. What are some barriers of entry?
a. The physical development of the business (i.e: laying down tracks, wires, building a store etc.)
b. Hiring workers
c. Renting a building
d. Buying the products
e. Education/know how of the business
17. Define:
a. Limited Partnership
i. A partnership where only one person makes decisions and holds total unlimited liability.
b. Sole Proprietor
i. A business owned and managed by a single individual
c. Corporation
i. A legal entity owned by individual stockholders
d. Cooperation
i. A business organization that is owned by a group of people for their own mutual benefit.
e. Start-up costs
i. Expenses a firm must pay in order to open a store and begin selling products.
f. Commodity
i. A product that will be the same no matter who produces it; typically an agricultural or mining
product.
g. Price Fixing:
i. An agreement among firms to control their prices as well as their output. The lure of monopoly
type profits lead many companies to agree to fix prices. There is legislation in the United States
to protect the consumer from price fixing
h. Monopoly
i. A market dominated by a single seller.
ii. Sets a price where marginal costs are equal to marginal revenue.
iii. Prices will be higher than in perfect competition
iv. Quantity sold will be less than quantity sold in a perfectly competitive market.
i. Patent
i. A license that gives the inventor exclusive rights to sell the product for a certain period of time.
j. Franchise
i. A right to sell a good or service within an exclusive certain market.
k. Oligopoly
i. A market where a few large firms dominate the market.
l. Barrier to Entry
i. Any factor that makes it difficult for a new firm to become part of a market.
m. Perfect Competition: same as 14