FIRM ORGANIZATION AND MARKET STRUCTURE

OBJECTIVES:
* Ownership and governance of firms.

* Profit maximization
* Profits overtime
* The make or buy decision
* Market structure
Firm Organization and Market Structure
OWNERSHIP AND GOVERNANCE OF FIRMS
Ownership and governance are two important aspects of firms.

Ownership - refers to the legal rights and responsibilities of individuals or
entities in relation to a company's assets and liabilities.
Governance -refers to the processes and structures through which decisions
are made and authority is exercised in a company.
Ownership in a firm can take various forms, including;

1. Sole Proprietorship: In this form of ownership, a single individual owns and
operates the business. The owner has unlimited liability for the company's
debts and obligations.
2. Partnership: A partnership involves two or more individuals who share
ownership and responsibility for the business. Partnerships can be general
partnerships, where all partners have unlimited liability, or limited
partnerships, where some partners have limited liability.
3. Corporation: A corporation is a legal entity that is separate from its owners.
Shareholders own the corporation by holding shares of stock. The liability of
shareholders is limited to their investment in the company.
4. Limited Liability Company (LLC): An LLC combines the limited liability of a
corporation with the flexibility and tax advantages of a partnership. Owners of
an LLC are called members.
Governance in a firm refers to the mechanisms and processes by which a
company is directed and controlled. It includes the roles and responsibilities of
the board of directors, management, and shareholders. Good corporate
governance ensures transparency, accountability, and fairness in decision-
making.
Key elements of corporate governance include:

1. Board of Directors: The board of directors is responsible for overseeing the
company's management and representing the interests of shareholders. They
make strategic decisions and provide guidance to the management team.
2. Executive Management: The executive management team, led by the CEO,
is responsible for the day-to-day operations of the company and implementing
the strategies approved by the board.
2. Shareholder Rights: Shareholders have certain rights, such as voting on
major decisions, receiving dividends, and accessing company information.
These rights are typically protected by laws and regulations.
3. Transparency and Disclosure: Companies are required to provide accurate
and timely information to shareholders and the public. This includes financial
reporting, disclosure of material information, and adherence to relevant laws
and regulations.
4. Ethical Standards: Good governance promotes ethical behavior and
integrity within the company. It includes establishing a code of conduct,
promoting diversity and inclusion, and ensuring compliance with laws and
regulations.
Effective ownership and governance structures are crucial for the success and
sustainability of firms. They help protect the interests of stakeholders,
promote accountability, and foster long-term value creation.
PROFIT MAXIMIZATION
Profit maximization is a traditional goal of firms, particularly in the context of

shareholder wealth maximization. It refers to the objective of maximizing the
difference between total revenue and total cost, resulting in the highest
possible profit for the company.
In pursuit of profit maximization, firms typically aim to increase their revenue
and reduce their costs. This can be achieved through various strategies, such
as:
1. Increasing sales volume: Firms can aim to increase their market share and
sales volume by implementing effective marketing and sales strategies,
expanding their customer base, or introducing new products or services.
2. Pricing strategies: Firms can employ pricing strategies to maximize their
profits. This can involve setting prices based on market demand, cost
considerations, or competitive factors.
3. Cost management: Firms can focus on reducing their costs through efficient
operations, optimizing production processes, controlling expenses, and
managing the supply chain effectively.
4. Productivity improvement: Enhancing productivity and efficiency can help
firms reduce costs and increase output, leading to higher profits. This can be
achieved through process improvements, technology adoption, and employee
training and development.
5. Innovation and differentiation: Firms can invest in research and
development to innovate and differentiate their products or services, allowing
them to command premium prices and gain a competitive advantage in the
market.
It is important to note that profit maximization is not the only goal pursued by
firms. Other objectives, such as long-term sustainability, customer satisfaction,
employee welfare, and social responsibility, are also considered by many
companies. Balancing these objectives is crucial for the overall success and
reputation of the firm.
it is worth mentioning that profit maximization should be pursued within legal

and ethical boundaries. Firms should comply with laws and regulations, and act
responsibly towards their stakeholders and the society in which they operate.
Profit overtime
Profit over time refers to the financial performance of a business or

organization measured over a specific period. It represents the difference
between total revenue and total expenses during that time frame. Profit is a
key indicator of a company's success and sustainability.
The profit over time can be analyzed using various financial metrics, such as:
1. Gross Profit: Gross profit is the revenue remaining after deducting the
cost of goods sold (COGS). It represents the profitability of a company's
core operations before considering other expenses.
2. Operating Profit: Operating profit, also known as operating income or
operating earnings, is the profit generated from a company's regular
business activities after deducting operating expenses, such as rent,
salaries, and utilities.
3. Net Profit: Net profit, also called net income or net earnings, is the final
profit figure after deducting all expenses, including taxes and interest. It
represents the overall profitability of a business.
Analyzing profit over time can provide insights into a company's financial
health, growth potential, and efficiency. A consistent and increasing profit
trend indicates a healthy and profitable business, while declining or negative
profits may indicate challenges or inefficiencies.
It's important for businesses to monitor and manage their profit over time to
ensure long-term success and sustainability. This involves strategies such as
cost control, revenue growth, efficient operations, and effective financial
management.
Remember, profit is just one aspect of a company's performance, and it should
be considered alongside other factors like cash flow, market share, and
customer satisfaction to have a comprehensive understanding of a business's
overall success.
How to Calculate Profit over Time?
The following steps outline how to calculate the Profit over Time
1. First, determine the total profit ($).

2. Next, determine the total time.
3. Next, gather the formula from above = POT = P / T.
4. Finally, calculate the Profit over Time.
5. After inserting the variables and calculating the result, check your answer
with the calculator above.
The make or buy decision
The make-or-buy decision is a fundamental choice for firms regarding their

organizational structure and market strategy. This decision involves choosing
between manufacturing a product or providing a service in-house (make) or
purchasing it from an external supplier (buy).
The key factors influencing this decision include:
1. Cost: If the cost of producing the product or service in-house is less than
purchasing it from an external supplier, then the firm is likely to opt for
the 'make' decision. This includes considering direct costs such as
materials and labor, and indirect costs such as overheads and
administrative expenses.
2. Capacity: If the firm has sufficient capacity to produce the product or

service without impacting its ability to meet other production demands,
it may choose to 'make'. If not, 'buy' may be the better option.
3. Quality Control: 'Making' allows for greater control over the quality of
the product or service, which can be crucial in some industries.
4. Core Competencies: Firms often choose to focus on their core

competencies and outsource non-core activities. If the product or
service is not a core competency of the firm, it may choose to 'buy'.
5. Market Structure: The structure of the market can also influence the
make-or-buy decision. In a highly competitive market, firms may choose
to 'make' to gain a competitive edge. In contrast, in a monopolistic or
oligopolistic market, 'buying' may be more advantageous.
6. Risk Management: Outsourcing can reduce risk by spreading
dependencies. However, it can also introduce new risks, such as supplier
reliability and quality consistency.
In terms of market structure, firms in monopolistic or oligopolistic markets may

have more leverage to negotiate favorable terms with suppliers, influencing
the 'buy' decision. On the other hand, in highly competitive markets, firms may
opt to 'make' to differentiate their products or services and gain a competitive
edge.
The make-or-buy decision is a strategic choice that depends on a multitude of

factors and can significantly impact a firm's competitiveness, profitability, and
risk profile.
MARKET STRUCTURE
A competitive market structure is one in which many firms produce identical

products and firms can easily enter and exit the market. Because each firm
produces a small share of the total market output and its product is identical to
that of other firms, each firm is a price taker, meaning that the firm cannot
raise its price above the market price.
A market is any organization where by buyers and sellers of a good are kept in
close touch with each other. It is precisely in this context that a market has
four basic components.
▶Consumers
▶Sellers
▶A commodity
▶A price
Types of Market Structure

▶Perfect Competition
▶Monopoly
▶Oligopoly
▶Monopolistic Competition
PERFECT COMPETITION
Perfect competition is a market structure characterized by a complete absence
of rivalry among the Individual firms.
MONOPOLY
Monopoly is said to exist when one firm is the sole producer or seller of a
product which has no close substitutes.
OLIGOPOLY
Oligopoly is a situation in which only a few firms (sellers) are competing in the
market for a particular commodity.
MONOPOLISTIC COMPETITION
It can define a monopolistic competitive market as a market in which there are
a large number of firms and the products in the market are close but not
perfect substitute.
Examples are retail trade, including restaurants, clothing stores, and
convenience stores.
GROUP 6
MEMBERS;
GEMARINO, MARECIL
MABANGKIT, HAZEL MAE
BARDE, RENA LOU
TINGGOY, ROSALIE
CABIL, WINPRIL
OMANI, CARMELLA

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OBJECTIVES:

* Ownership and governance of firms.

OWNERSHIP AND GOVERNANCE OF FIRMS

Ownership and governance are two important aspects of firms.

Ownership in a firm can take various forms, including;

Key elements of corporate governance include:

Profit maximization is a traditional goal of firms, particularly in the context of

it is worth mentioning that profit maximization should be pursued within legal

Profit over time refers to the financial performance of a business or

1. First, determine the total profit ($).

The make or buy decision

The make-or-buy decision is a fundamental choice for firms regarding their

The key factors influencing this decision include:

2. Capacity: If the firm has sufficient capacity to produce the product or

4. Core Competencies: Firms often choose to focus on their core

In terms of market structure, firms in monopolistic or oligopolistic markets may

The make-or-buy decision is a strategic choice that depends on a multitude of

A competitive market structure is one in which many firms produce identical

Types of Market Structure

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