Chapter 6 Answers
chapter Six businesses and Their Costs
ANSWERS TO END-OF-CHAPTER QUESTIONS
6-1 Distinguish clearly between a plant, a firm, and an industry. Contrast a vertically integrated firm, a horizontally integrated firm, and a conglomerate. Cite an example of a horizontally integrated firm from which you have recently made a purchase. A plant is an operating unit where production takes place. This production can be manufacturing, farming, mining, retailing, wholesaling, warehousing—anything, in short, necessary for the production and distribution of goods and services. A firm is the business organization that owns one or more plants. A firm can be very large, such as General Motors, which owns many plants in many countries, or very small, such as an independent corner grocery. An industry is a somewhat arbitrary grouping of firms producing similar products—such as the steel industry. There may be a problem defining which firms belong to an industry; the firms in the automobile industry produce many non-automotive products. A vertically integrated firm contains plants that are involved in various stages of the production process. A horizontally integrated firm contains plants that are involved in the same function of business. A conglomerate firm has plants that are producing products in several industries. Examples might include grocery stores, retail outlets, gas stations, or similar establishments that may have bought out competitors to open new stores.
6-2 What major advantages of corporations have given rise to their dominance as a form of business organization? Corporations are dominant in terms of total profits. They can access large amounts of money by issuing stocks and bonds; their limited liability is attractive to potential owners; their size and broader ownership base help ensure continuity that helps to build a large customer base and gain cost advantages (a preview for economies of scale).
ANSWERS TO END-OF-CHAPTER QUESTIONS
6-1 Distinguish clearly between a plant, a firm, and an industry. Contrast a vertically integrated firm, a horizontally integrated firm, and a conglomerate. Cite an example of a horizontally integrated firm from which you have recently made a purchase. A plant is an operating unit where production takes place. This production can be manufacturing, farming, mining, retailing, wholesaling, warehousing—anything, in short, necessary for the production and distribution of goods and services. A firm is the business organization that owns one or more plants. A firm can be very large, such as General Motors, which owns many plants in many countries, or very small, such as an independent corner grocery. An industry is a somewhat arbitrary grouping of firms producing similar products—such as the steel industry. There may be a problem defining which firms belong to an industry; the firms in the automobile industry produce many non-automotive products. A vertically integrated firm contains plants that are involved in various stages of the production process. A horizontally integrated firm contains plants that are involved in the same function of business. A conglomerate firm has plants that are producing products in several industries. Examples might include grocery stores, retail outlets, gas stations, or similar establishments that may have bought out competitors to open new stores.
6-2 What major advantages of corporations have given rise to their dominance as a form of business organization? Corporations are dominant in terms of total profits. They can access large amounts of money by issuing stocks and bonds; their limited liability is attractive to potential owners; their size and broader ownership base help ensure continuity that helps to build a large customer base and gain cost advantages (a preview for economies of scale).