2. Which of the following statements do you think reflect sound economic thinkin

Question

2. Which of the following statements do you think reflect sound economic thinking? Explain your answer. a. "Ipaid S400 for thiseconomics course. Therefore, I'm going to attend the lectures even if they are useless and boring" b. "Because we own rather than rent, and the house is paid for, housing doesn't cost us anything." c. "I own 100 shares of stock that I can't afford to sell until the price goes up enough for me to get back at least my original investment" d. "Private education is costly to produce, whereas public schooling is free." 6. What are some of the advantages of the corporate business structure of ownership for large business firms? What are some of the disadvantages? Is the corporate form of business ownership cost efficient? In a market economy, how would you tell whether the corporate structural form was efficient? 8. Which of the following are relevant to a firm's decision to increase output: (a) short-run average total cost, (b) short-run marginal cost, (c) long-run average total cost? Justify your answer.

Explanation / Answer

2)

Option (c) reflects a sound economic thinking. Since, the person owns about 100 shares of a firm as an investment, thus it is logical for him to sell them when the returns from his investment are more than what he has originally invested. But this is viable only when he faces no urgency to obtain money. In that case he will have to sell off the shares even at losses.

6)

The Private corporation exists as a unique entity from its owners, or shareholders. A corporation can be taxed, sued, enter into contractual agreements, and is responsible for its own debts. Shareholders own the corporation, and they elect a board of directors to make major decisions and oversee corporate policy. The corporation files its own tax return and pays taxes on its income from operations.

There are several major advantages of owning a corporation. Sale of stock can help raise large amounts of capital significantly faster and shareholders are only responsible for their personal financial investment in the company. Shareholders have only limited liability for debts and judgments made against the company. And the corporation can deduct the cost of benefits paid to employees from corporate tax returns.

The disadvantages of forming a corporation are as follows:

It costs more money than a partnership, it includes legal and regulatory fees. Also, corporations are subject to monitoring by federal and state agencies. More paperwork related to taxes and regulatory compliance is required. Taxes are higher for business corporations, particularly if it pays dividends to its shareholders. dividends are taxed twice as much.

For an ownership to be cost effective it is typically logical to give ownership of the firm to its patrons. Efficiency calls for assigning ownership to that class of patrons for whom the costs of market contracting would be the highest. in other words, simply share the ownership of the firm among its all types of patrons.

Key to regulate efficiency is create competition. Competition promotes efficiency, since it is difficult for the firm to regulate the market.

8)

In the short run, the firm needs to cover atleast its variable costs if not the fixed costs in order to exapnd the output. Fixed costs are independent of output and remain constant throughout. variable costs vary with output. In the long run there are no fixed costs. In the long run firms will expand when there are increasing returns to scale. Increasing returns to scale happen when there are falling long run average total costs.

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