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[Tutoring Concerns] André and Sasha Want to Go into Business

question 49

Multiple Choice

[Tutoring Concerns] André and Sasha want to go into business together and plan on offering a tutoring service to high school and college students. André proposes that they share control of the business and split profits equally and not bother with a written agreement. Sasha, however, is concerned about being able to pay their debts, since they will have to rent tutoring space, and purchase computers and supplies. She is also concerned about parents and students who may sue if their test scores do not improve. She tells André that she just bought a new boat and car, and that she does not want her assets to be in jeopardy. She tells André that they should form a corporation to shield their personal assets. André, however, tells Sasha that their personal assets are not in danger with his proposal because they are a business and that, furthermore, forming a corporation would result in a tax being imposed twice.
-What type of arrangement did André propose when he suggested that they share control of the business and split profits equally, not bothering with a written agreement?

Definitions:

Repeated Games

A game played by the same participants multiple times, allowing for the development of strategies based on previous outcomes.

Net Payoffs

The final amount of profit or loss after all gains and costs have been accounted for in a financial transaction or decision.

Oligopolist

A firm that is part of an industry where a small number of entities dominate the market, often leading to limited competition.