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Canada (158,078)
Economics (923)
ECN 104 (388)
Chapter 6

Chapter 6

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Ryerson University
ECN 104
Halis Yildiz

Chapter 6: The Organization and Costs of Production 6.1 The Firm and The Business Sector Plant: a physical establishment that performs onemore functions in producing, fabricating, distributing goods & services (ie. factory, farm, mine, store, warehouse) Firm: an organization that resources to produce goods or services for profit and operates onemore plants Multiplant firms: several plants performing much the same function (ie. multiple bottling plants of coca-cola) Vertically integrated: own plants that perform different functions in various stages of the production process (ie. Petro Canada own oil fields, refineries, retail gasoline stations) Conglomerates: have plants that produce products in several industries (ie. Power Corp. of Montreal operates in communications and industrial, financial, energy services) Industry: a group of firms that produce the samesimilar products or services Legal Forms of Business Sole Proprietorship: an unincorporated firm owned and operated by one person Partnership: an unincorporated firm owned and operated by twomore people Corporation: a legal entity chartered by the federalprovincial government that operates as a distinct and separate body from the individuals who own it Stock (corporate): a share in the ownership of a corporation; purchaser has the right to vote for corporate officers and to share in dividends Bond: a financial device through which a borrower (a firmgovernment) is obligated to pay the principal and interest on a loan at a specific date in the future; purchaser simply lending money to corporation Limited liability: corporations provided to owners (shareholders); restriction of maximum loss to a predetermined amount for the owners (shareholders) of a corporation; the maximum loss is the amount they paid for their shares Creditors can sue corporation but cant sue owners of corporations individually Principal-Agent Problem A conflict of interest that occurs when agents (workersmanagers) pursue their own objectives to the determinant of the principals (shareholders) goods Principals are shareholders who own the corporation and who hire executives as their agents to run the business on their behalf www.notesolution.com
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