Terms
1. Division of Labor: dividing production into specific tasks
2. Specialization: each person does only 1 task; they learn that task
very well = production
3. Economy of Scale: situation in which the per unit cost decreases
as more goods are produced (buying in bulk)
Forms of Business Organization
1. Sole Proprietorship
a. owned by a single person whio makes all the decisions,
keeps all the profits, and pays all the losses
2. Partnership
a. owned by 2 or more people who make decisions
together and share profits and losses
3. Corporation
a. collectively owned by many individuals, but acts
as though it is owned by 1 person
b. are formed by getting a charter from the state
c. run by a Board of Directors
d. raise money by selling stock -share of ownership
e. dividend - share of profit paid to each stockholder
f. 2 types of stock
1. common - stockholder
has voice in decisions; gets to vote at stockholder meetings
2. preferred - no vote,
but guarantees a dividend each year
g. Asset - anything of value
Franchises
1. Franchise: a contract that allows a person to use the name
of a corporation and sell the corporation's products
a. franchiser: corporation selling the contract
b. franchisee: person or group buying the contract
c. how it works...
1. franchisee has to...
a. pay an initial fee (avg. McDonald's fee = $65,000)
b. pay a royalty (% of profits) for a period of years
c. meet certain quality guidelines
2. franchisee gets...
a. use of corporation name and products
b. financial help from corporation
c. help training employees
d. national advertising