The common abbreviation for the long-run marginal cost curve, which is the graphical representation of the relationship between long-run marginal cost and the quantity of output produced.
The common abbreviation for the long-run marginal cost curve, which is the graphical representation of the relationship between long-run marginal cost and the quantity of output produced. Like other marginal curves, the long-run marginal cost curve follows the average-marginal rule relative to the long-run average cost curve.
In all outward appearance, the long-run marginal cost curve looks very much like the short-run marginal cost, that is, it is U-shaped. However, the U-shape is attributable to returns to scale rather than increasing and decreasing marginal returns.
The aggregate macroeconomic sector that contains the private, profit-seeking firms in the economy that combine scarce resources into the production of wants-and-needs satisfying goods and services.
The primary economic function of the business sector is the production of goods and services. The three basic types of business organizations that comprise the business sector are proprietorship, partnership, and corporation. This is one of the four macroeconomic sectors. The other three are household sector, government sector, and foreign sector. The business sector includes the profit -motivated firm s that engage in the production of goods and services.
These firms combine the services of the four factors of production , which they acquire from the household sector , to pursue their productive activities. The primary reason for the existence of the business sector is to produce the goods that satisfy the want s and need s of the household sector. A Vast Array The business sector is comprised of a wide range of different types of firms. Some are small and some are large. The firms might be legally organized as proprietorship s, partnership s, or corporation s.
They might be home-based businesses or operate dozens of factories around the country. To illustrate the possibilities, consider the Shady Valley business sector.
This corporation, owned by shareholders across the land, operates countless productive factories and employs thousands of workers. It combines resources to produce an assortment of products, ranging from athletic shoes to wireless telephone services, from automobiles to soft drinks. On the other end of the size spectrum is owner-operated proprietorships like Phil Gardener, the home-based zucchini grower.
Phil grows zucchini in his backyard garden plot, which he sells at the local farmers market. He also combines the four factors of production in this pursuit. Other proprietorships operating in the Shady Valley metropolitan area are Becky Carpenter, who fashions fabulous furniture in her garage, Dan Dreiling, who runs a profitable drywall installation business from his house, and Dr.
Nova Cain, a purportedly painless provider of dental services. Schrumpmeyer and Schrumpmeyer, Attorneys at Law, exemplify the partnership form of jointly-owned business organization.
Sally and Sean Schrumpmeyer provide legal services to the residents of Shady Valley. They also combine resources to produce their legal services. Production While the business sector is designated based on WHO is included--proprietorships, partnerships, and corporations--this sector can also be delineated based on WHAT it does--which is production.
This sector is responsible for the economic act of production. In fact, the business sector is not so much a thing, as it is a process, a system that society has devised to combine resources for production.
Production is the fundamental process of combining resources in such a way that the result is a more valuable commodity or service. This process might involve, and often does, a physical transformation of materials.
An example is transforming piles of iron ore, bauxite ore, silicate sand, and petroleum into a high-powered automobile. However, the process might involve little more than the spatial relocation of commodities or materials. An example is shipping an automobile to a car dealership. Both are acts of production that enhance the value of the product.
Investment Although the business sector is largely responsible for producing and supplying goods and services to the household sector and the rest of the economy, they do a little buying of their own.
From a macroeconomic perspective, the business sector is responsible for capital investment expenditure s on gross domestic product. Business investment expenditures play a key role in short-term business cycle s and long-term economic growth.
The investment activities of the business sector suggest two related notions--investment and investment expenditures. While these two terms might seem identical, and are occasionally used synonymously, there is a difference. This is the generic term for the sacrifice of current consumption to enhance future production capabilities.
Such investment can involved the acquisition of capital goods by the business sector or activities undertaken by the household sector, such as attending college. In particular, some investment acts might not involve expenditures by the business sector. This is a more specific term meaning actual expenditures by the business sector on capital goods such as factories and equipment.
These expenditures are used to purchase a share of gross domestic product. The official government measure of investment expenditures is gross private domestic investment. The other three are the household sector, government sector, and foreign sector.
This sector includes the entire, wants-and-needs-satisfying, eating, breathing, consuming population of the economy. In a word, it includes everyone, all consumers, all people, and every member of society. Pollyanna Pumpernickel, a hardworking mother of two, is a representative member of the household sector.
This sector includes all government entities that impose resource allocation decisions, that might not be made otherwise, on the rest of the economy. It consists of the three primary levels--federal, state, and local--responsible for passing and enforcing laws. Of course, all branches and agencies of the U. This sector is comprised of everyone and everything outside the political boundaries of the domestic economy.
It includes households, businesses, and governments in other countries. The foreign sector of the domestic United States economy includes the governments of other nations such as the hypothetical Republic of Northwest Queoldiolia. It also includes citizens and businesses in other nations, such as Horst Duncanstein, a citizen of Northwest Queoldiolia, and Quedoldiolian Sundial Company, also located in Northwest Queoldiolia.
Selling to All Sectors The business sector is responsible for producing gross domestic product. This output is then purchased by each of the four macroeconomic sectors. For examples, once again consider the Shady Valley business sector: The Shady Valley business sector produces a number of goods directly for household consumption.
Nova Cain's dental services, and much more. Firms in the business sector purchase capital goods from other firms in the business sector. Of course, businesses capital also includes buildings and equipment. Becky Carpenter also fashions office furniture then finds its way into a business environment. The OmniDefense division of OmniConglomerate is a prime military contractor, providing a wide assortment of goods purchased directly by the U.
These goods range from uniforms to rifles to heavy artillery. In addition, many federal, state and local government agencies purchase computers from Quadra DG Computer Works, wireless telephone services from Digital Distance, and even an occasional zucchini from Phil Gardener.
Firms in the Shady Valley business sector also sell goods beyond the political boundaries of the country. Wacky Willy Stuffed Amigos are exported world wide--to folks in the foreign sector.
The same can be said for cars produced by the OmniMotors division of OmniConglomerate. The fabulous furniture fashioned by Becky Carpenter has also been found in foreign lands.
Connecting to the Circular Flow The Circular Flow The business sector is a key component of the circular flow model of the economy. The circular flow captures the continuous movement of production, income, and factor payments between producers and consumers. A basic representation of the circular flow is displayed to the right. The four components of this simple model are: The household sector at the far left contains the consuming population of the economy. The business sector at the far right includes all of the producers.
The product markets at the top of the flow direct production from the business sector to the household sector in exchange for payment flowing in the opposite direction. The resource markets at the bottom of the flow direct factor services from the household sector to the business sector in exchange for payment flowing in the opposite direction.
The circular flow indicates that the income used by the household sector to purchase goods through the product markets is obtained by selling factor services through the resource markets. It also indicates that the revenue used by the business sector to pay for factor services obtained through the resource markets is generated by selling goods through the product markets.
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