Answer to Question 1
C
Answer to Question 2
The three main ways of organizing a firm have both advantages and disadvantages:
Proprietorship. ADVANTAGESeasy to set up; managerial decision-making is simple and rapid; and profits are taxed only once. DISADVANTAGESbad decisions on the part of the owner are not subject to review; the owner's entire wealth is at stake because of unlimited liability; the firm dies with the owner; and acquiring capital and labor is expensive.
Partnership. ADVANTAGESeasy to set up; has diversified decision-making so that more than one person's expertise can be utilized; can survive the death or withdrawal of a partner; and profits are taxed only once. DISADVANTAGESall the owners' wealth is at risk because of unlimited liability; if there are many partners, gaining a consensus about managerial decisions may be difficult; the withdrawal of partner may create capital shortage; labor costs are high compared to corporations; and capital costs can be high.
Corporation. ADVANTAGESperpetual life; limited liability for its owners; readily available, large-scale, and low-cost capital; can rely on professional managers rather than the talents of the owners; and reduced costs from long-term labor contracts. DISADVANTAGESpotent ially complex management structure may lead to slow and expensive decision-making; and profits are taxed twice, once as corporate profit and once as income to the stockholders.
Figure 7.1 shows the rapid decline in the trust of Americans in government since the 1960s. This de
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Swimming Pool (Figure 3.1)