Terms and concepts

plant, p. 181 firm, p. 181 industry, p. 181 sole proprietorship, p. 181 partnership, p. 181 corporation, p. 181 stocks, p. 183 bonds, p. 183 limited liability, p. 183 double taxation, p. 183 principle-agent problem, p. 183

economic (opportunity) cost, p. 184

explicit costs, p. 185 implicit costs, p. 185 normal profit, p. 185 economic profit, p. 186 short run, p. 187 long run, p. 187 total product (TP), p. 188 marginal product (MP), p. 188 average product (AP), p. 188 law of diminishing returns, p. 188 fixed costs, p. 192 variable costs, p. 192 total cost, p. 192

average fixed cost (AFC), p. 194

average variable cost (AVC), p. 194

average total cost (ATC), p. 195

marginal cost (MC), p. 195 economies of scale, p. 202 diseconomies of scale, p. 203 constant returns to scale, p. 203

minimum efficient scale


1. Distinguish between a plant, a firm, and an industry. Why is an industry often difficult to define?

2. KEY QUESTION What are the major legal forms of business organization? Briefly state the advantages and disadvantages of each. How do you account for the dominant role of corporations in the Canadian economy?

"The legal form an enterprise takes is dictated primarily by the financial requirements of its particular line of production." Do you agree? Why or why not?

KEY QUESTION Gomez runs a small pottery firm. He hires one helper at $12,000 per year, pays annual rent of $5000 for his shop, and spends $20,000 per year on

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