economics

Perfect competition

is a market structure in which a large number of firms all produce the same product.

Examples of perfect competition

many buyers and sellers, identical products, and easy market entry and exit.

Barriers to entry

are factors that make it difficult for new firms to enter a market

Examples of barriers to entry

are start-up costs and technology.

A commodity

is a basic good that is generally interchangeable with similar goods from other producers.

A monopoly

is a market dominated by a single seller.

Examples of monopolies

are Standard Oil, Carnegie Steel, and Google.

A natural monopoly

is a market that runs most efficiently when one large firm provides all the output. Government often regulates them, such as utility companies.

Examples of monopolies

allowed by government are patents, copyright, and some regulated utilities.

Patents

are allowed to encourage invention and innovation.

A monopolist generally maximizes profit

by producing the quantity at which marginal revenue = marginal cost.

A monopolist may earn higher profits

because it has less competition and more control over pricing and output.

Monopolistic competition

is when many companies compete in an open market to sell products that are similar but not identical.

Examples of monopolistic competition

are many firms, few artificial barriers to entry, and slight control over prices.

An oligopoly

is a market dominated by two to four large firms selling over 70% of the output.

Examples of oligopoly

are cereal companies, commercial aircraft manufacturing, and automobile markets.

A cartel

is an association of producers established to collude. It only works as long as all sellers keep the agreement.

Forms of non-price competition

are characteristics of goods, location of sales, service level, and advertising image.

Price discrimination

is the division of customers into groups based on how much they will pay for a good.

Requirements to successfully price discriminate

are having some market power, distinct customer groups, and difficult resale.

Examples of price discrimination

are movie theaters, airlines, and museums.

Economies of scale

occur when a business's average cost per unit falls as it increases production.

Deregulation

is the removal of some government controls over a market.

Antitrust laws

are used by the government to break up existing monopolies, such as the Standard Oil Trust and AT&T.

Sole proprietorships

are the most common form of business organization.

Advantages of sole proprietorships

are ease of start-up, few regulations, the sole proprietor gets all the profits, full control, and easy discontinuation

A disadvantage of sole proprietorships

is unlimited personal liability.

What percent of businesses are sole proprietorships

About 70% of businesses

A business license

is an official authorization required by a government agency for a business to operate in a particular location or industry.

Liability

is the legal obligation to pay debts.

A general partnership

is a business owned by two or more people who agree to operate it together.

A limited partnership

is a business structure with at least one general partner and one or more limited partners.

A limited liability partnership

is a business structure that provides partners with certain liability protections under applicable law.

A corporation

is a legal entity. Think of it as a person that can potentially live forever, owned by individuals.

Advantages of a corporation

include limited liability for shareholders in most circumstances.

Disadvantages of a corporation

are more legal paperwork and administrative requirements.

What are percentage of businesses are corporation?

About 20% of all businesses are corporations, but they sell about 80% of all goods.

A business franchise

is a semi-independent business that pays a fee to a parent company in return for the exclusive right to sell a certain product or service in a given area.

Royalties

are payments made for the use of another party's property, intellectual property, or licensed rights. Often, royalties in franchising are paid to the franchisor.

Assets

are resources owned or controlled by a person or business that have economic value.

Vertical mergers

combine two or more firms involved in different stages of producing the same good or service.

Horizontal mergers

combine two or more firms that sell the same good or service.

Multinational corporations

are large corporations headquartered in one country that have subsidiaries throughout the world.

A conglomerate

is a business combination merging more than three businesses that make unrelated products.

Zoning laws

are local government rules that regulate how land and buildings may be used in particular areas.

A trade association

is an organization formed by businesses or professionals in the same industry to represent shared interests.

Nonprofit organizations

must serve the public good in some way. Nonprofit organizations are exempt from federal income taxes because there is no profit going to the owner or owners.