![]() Costs a firm bears in the short run regardless of output.Fixed costs are associated with the fixed factor, usually capital, sometimes referred to as overhead cost.Total cost is the sum of fixed and variable costs:.Inventories must be financed by working capital and require storage space.There are three types: raw materials, intermediate (semi-finished) goods, and final goods.Firms carry inventories which act as shock absorbers so production and sales never need to stop.Natural resources are either treated like capital if the firm owns them, or treated as an input that must be purchased.δ is the depreciation rate on the capital.r refers to the interest on the loan to buy the capital or if the company owns the capital it is the Opportunity Cost Rate of Return that could have been earned on the money tied up in the capital.Capital can be rented but is often owned, a cost must be imputed (estimated) for the capital services, where:.Labour: firms pay a wage for labour service.Factors of production are priced at opportunity or user cost:.Companies must balance revenues and costs so as to maximize profits.Poor management: most owners do not know how to delegate tasks, organize a business in an efficient manner, or coordinate tasks.Poor financing: most do not know how to invest money so that it repays the capital as well as the carrying costs.Marketing: owners do not understand how to serve the market.Small Firms: most small companies fail for three reasons:.Very powerful: some have budgets that are greater than entire country GDPs.Transfer pricing allows prices of FoP WITHIN an organization (this may reduce taxable revenue within a country).Advances in telecom and transportation have allowed firms to globalize.Tastes are different, MNCs produce locally to tailor services to the local market.Rather than fight tariff and non-tariff barriers, MNCs just set up production in the host country. ![]() Internationally there are 600 multinational companies (MNCs), more than half are involved in banking and finance, petroleum and chemicals.A corporation which has his managerial head quarters in one country known as the HOME country and operate on several other countries known as the HOST country (ILO).Enterprise/firm that manages production or delivers services in more than one country.Multinational/Transnational companies/Multinational enterprise Firms must profit maximize in order to earn at least the Opportunity Cost Rate of Return, otherwise their share value will fall, and another firm will buy them out and force them to earn at least the Opportunity Cost Rate of Return.Working capital (usually associated with the L and NR used in production) from retained earnings or by short term loans from banks.Risk capital (usually associated with the entrepreneurial input) by issuing shares.Fixed capital (usually associated with K) by borrowing money from the bank or by selling bonds in the bond market or through retained earnings.A typical company pays out half its earnings in the form of dividends, the rest is re-invested.Limited liability allows companies to raise money easily, because individuals are not so afraid of losing everything in the case of bankruptcy.The large firms are 17,000 times larger on average than the small firms.In the US only 1000 companies account for 60% of the GDP, the remaining 40% is produced by 11 million businesses and other institutions.The separation of management and ownership through limited liability 500 years ago is the key to why firms have been able to grow so rapidly and to become so large.Financial liability is limited to a fixed value, commonly a person's investment in a company/partnership established with limited liability.
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