Business, Legal & Accounting Glossary
Firms are recognized as significant factors of production used in economics. A firm is also referred to as a business entity that produces goods in an economy. A firm can be known as a lawfully acknowledged organizational entity, which is set up in an economy to produce goods and services for consumers.
A firm can be governed owned or can have private enterprise. There are mainly 4 types of ownership found in firms. Starting with a sole proprietorship, which is owned by an individual. In this case, the sole owner is responsible for taking decisions and also possesses indefinite individual liability of debt incurred by firms. A partnership is another type of ownership, in which two or more people come together for achieving the same goal. Here, each partner has to bear the indefinite individual liability of debts incurred by a firm.
In economics, a competitive firm is referred to that type of firm which operates under a competitive market form. This type of firm though rare in reality is widely used in forming an economic model for study of market behaviour. A competitive firm possesses certain characteristics like:
Monopolistic firms produce non-homogeneous or differentiated products in the market. Since firms produce different products, they possess some kind of market power. Monopolistic firms can raise prices for their products without losing their customers. The demand curve for a monopolistic firm will be downward sloping and elastic due to the presence of close substitutes.
A monopolistic firm can earn abnormal profits, normal profits or even incur an excessive loss. When the average revenue curve is greater than the average cost curve, it is an abnormal profit, again when the average revenue curve is equal to the average cost curve, there are normal profits. When the average revenue curve is less than average cost curve, there is a loss. These are conditions for short term equilibrium of any monopolistic firm.
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This glossary post was last updated: 28th March, 2020 | 39 Views.