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CHANGE IN INVENTORIES: The increase or decrease in the stocks of final goods, intermediate goods, raw materials, and other inputs that businesses keep on hand to use in production the occur because aggregate expenditures are not equal to aggregate output. Inventory changes play a key role in the Keynesian economics and the analysis of macroeconomic equilibrium. When inventory changes are zero, then aggregate expenditures are equal to aggregate output and there is no reason for the business sector to change the rate of production. Hence this is equilibrium.
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FIRM: An organization that combines scarce resources for the production and supply of goods and services. The firm is used by entrepreneurs to bring together otherwise idle resources. The term firm is often used synonymously with the business, enterprise, or company. If there is a difference, a firm is functionally defined and need not be a typical for-profit business. A firm can be profit oriented, nonprofit, privately owned, or government controlled. The key role played by a firm is the production of output using scarce resources. Firms are the means through which society transforms less satisfying resources into more satisfying goods and services. If firms do not do this deed, then something else will. While the alternative might have a different name (call it a "zorph"), it would functionally operate as a firm.Institutionalizing EntrepreneurshipA firm (or zorph) provides the institutional structure used by entrepreneurship to organize the production. Entrepreneurship undertakes the risk of bringing together the other factors of production and engaging in production. A firm provides focus and often legal standing to this process. The overarching motivation of entrepreneurship oft is, but need not be, the pursuit of profit. The entrepreneur organizing the production might be primarily interested in pursuing charitable works or improving the operation of government. In such cases, the result is a nonprofit firm or government enterprise. Profit Seeking FirmsHow about an example or three of standard business firms?- The Wacky Willy Company is an excellent example of a firm. This corporation was formed by William J. Wackowski, an aspiring entrepreneur who had the dream of putting a stuffed tarantula in every baby's crib and for every toddler to cling lovingly to a stuffed armadillo. Mr. Wackowski (Wild Bill) formed The Wacky Willy Company to make this dream a reality. The Wacky Willy Company, is a modest operation, but it is the means used by Willy the Wackmeister to produce and distribute Stuffed Amigos, this firm provides the mechanism he uses to combine labor, capital, and raw materials needed to produce Stuffed Amigos.
- Yet a firm need not be legally incorporated like The Wacky Willy Company. Phil Gardener grows zucchinis in his backyard. Phil's zucchini-grower business is also a firm. His firm, however, consists of him, making it a proprietorship. Phil also had a dream, a dream of growing the best zucchinis Shady Valley has ever seen. To implement this dream, Phil has a section of his backyard set aside for zucchini production. He purchases the necessary supplies from his local garden center, spends a few hours a day tending to his crop, then sells his produce upon harvest. His firm is NOT a corporation. It is nothing more than a guy who grows zucchinis. But it is a firm nonetheless.
- At the opposite end of Phil's zucchini growing proprietorship lies OmniConglomerate, Inc. Like The Wacky Willy Company, OmniConglomerate is a certified corporation. However, unlike The Wacky Willy Company, OmniConglomerate produces more than a single good. In fact, OmniConglomerate is the parent firm overseeing the production of a multitude of different goods. OmniMotors produces cars, OmniCell is a wireless telephone company, OmniFoot manufactures athletic shoes, OmniHealth runs a chain of medical clinics, and the list goes on. OmniConglomerate is itself a firm, which owns and controls a score of other firms OmniMotors, OmniCell, and OmniFoot.
Not For ProfitNot all firms are motivated by profit. A couple of examples can serve to illustrate:- One example of a firm, falling in the nonprofit category, is provided by Madison Kunkleburgton. Madison, sensitive to the plight of pedestrians with foot ailments, formed a charitable organization to offer assistance to those in need. He acquired funding, collected donations, rented office space, and brought together some of the finest podiatrists available to study foot-related problems. His nonprofit firm (United Foot) provides a valuable service to thousands of needy pedestrians. However, unlike other firms such as The Wacky Willy Company, United Foot is not in pursuit of profit.
- Another example of the not for profit variety of firm can be had by the Mayor of Shady Valley, Victor Thurgood. Looking for ways to generate more revenue, Mayor Thurgood enticed the City of Shady Valley to establish a casino and resort hotel. Although it operates like any casino found in Las Vegas or Atlantic City, this particular firm is owned by the government of Shady Valley. As such, it is not a "for profit" firm. While it does generate an excess of revenue over expenses (a lot of excess revenue), which is used by the city to pay for assorted public services, as a government-owned firm, this excess revenue is not technically considered profit.
Recommended Citation:FIRM, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 2000-2024. [Accessed: November 14, 2024]. Check Out These Related Terms... | | | | | | | | | | | | Or For A Little Background... | | | | | | | | And For Further Study... | | | | | | | | | Related Websites (Will Open in New Window)... | | | | | |
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Today, you are likely to spend a great deal of time at a crowded estate auction wanting to buy either a large red and white striped beach towel or a bottle of blackcherry flavored spring water. Be on the lookout for telephone calls from former employers. Your Complete Scope
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Junk bonds are so called because they have a better than 50% chance of default, carrying a Standard & Poor's rating of CC or lower.
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