Types of business organizations
Sole proprietors Partnerships Private companies Public companies Multi-nationals Co-operatives Public corporation
Sole proprietor
Sole proprietor is a business owned and managed by one person Sole proprietor is often referred to as the sole trader
Sole trader has unlimited liability Sole trader has limited finance Sole trader makes all the decisions Sole trader business is easy to set up
Partnership
Partnership is a business owned and managed by at least 2 persons Owners of partnership are referred to as partners
Partner have unlimited liability Partnerships raise more finance
Partners make decisions after consultation Partnership business is easy to set up
Private companies
Private limited is a business owned and managed by at least 2 persons Owners are referred to as shareholders
Private companies have limited liability
Private companies raise finance by issuing share
Public companies
Public limited is a business owned and managed by at least 2 persons Public limited companies have plc after their company name eg. FET plc PLC companies have limited liability
Public limited companies raise large amount of finance by selling shares Can sell shares to general public
Multi-nationals
A company which produces or provides services in more than one country The advantages and disadvantages they provide to the country where they operate are:
– Advantages: employment, tax revenue, quality products
– Disadvantages: harm to domestic industry
Co-operatives
Cooperatives are owned and managed by its members persons Cooperative operate for the welfare of its members
Owners are referred to as the members
Different co-operatives have different objectives Can sell shares to general public
Public corporations
Public corporations are owned by the government There are no shareholders in public corporation Main aim is to work for welfare of the general public Run by a management appointed by the government
Effect of changes in structure of business organizations
When public corporations are sold to the private sector it is called privatisation
Effects of privatization:
– Business efficiency (low cost, high quality)What determines the
The following factors determine the demand for factors of production:
– Consumer- entrepreneurs produce the products which consumers
want
– Productivity
– Cost
Costs
Total costs
– Total expense of producing an output or a product
Average cost
– Total cost divided by output
Costs
Fixed cost
– The costs which stays same irrespective of the fact that the business
produces or not Variable cost
– A cost which changes as the production of the business changes
Total and average revenue
Total revenue
– The sum of units sold and selling price
Average revenue
– Total revenue divided by output or number of units sold
Principle of profit maximization
Firms strive to achieve maximum profits.
They do this by keeping the difference between total revenue and total cost highest and in a positive figure
Pricing and output policies in perfect competition
Large number of buyers and sellers
The firms charge the same price as the competition does, they do not increase or decrease price
Pricing and output policies in monopoly
One seller supplying the product
Monopoly can charge the price which is acceptable to the consumers It may restrict the supply to increase the demand and earn abnormal profits
Monopoly does not respond to the consumers’ demands because it knows it will sell the product anyway
Advantages of monopoly
Lower costs
Save money, by not producing wasteful duplication Spend money on research
Offer lower price to the consumer
Disadvantages of monopoly
Inefficiency in production
Does not cater to the demands of consumers
May exploit the consumers as it is the only business providing the product May charge higher price by decreasing the supply
Main reasons for different sizes of firms
Size of market Capital
Organization Barriers to enter
Integration
Integration is when two businesses join each other Types of integration
Horizontal integration Vertical integration
– Backward vertical integration
Horizontal integration happens when a business acquires or joins a business which is providing the same product at the same stage of production
– Example: A Coffee shop acquires another coffee shop
Vertical integration
Backward vertical integration happens when a business acquires or joins one of its suppliers
– Example: Coffee shop acquires a dairy farm
Forward vertical integration happens when a business acquires or joins one of its retailer or distributor
– Example: a dairy farm acquires a coffee shop
Economies of scale
Economies of scale is when there is a reduction in long term cost when the business grows
Types of economies of scale
– Internal economies of scale
– External economies of scale
Diseconomies of scale
Diseconomies of scale is when there is an increase in long term cost when the business grows
Types of diseconomies of scale
– Internal diseconomies of scale
