Explain the Two Different Motives That Firms Have for Choosing

question 37

Essay

Explain the two different motives that firms have for choosing the lowest-cost production methods to produce goods and services?
The first motive is that because inefficiency drives up costs and lowers profits,any firm wishing to will make great efforts to minimize production costs.These efforts will include using the right mix of labour and capital,given the prices and productivity of those resources.They also mean locating production facilities optimally to minimize production and transportation expenses.
The second motive is due to competition,consumers strongly prefer low prices and will shift their purchases over to the firms that can produce a quality product at the lowest possible price.Any firm foolish enough to use higher-cost production methods will go bankrupt as it is undersold by its more efficient competitors who can still make a profit when selling at a lower price.In other words,competition eliminates high-cost producers,and so firms are motivated to choose the lowest-cost production methods to produce goods and services.

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Definitions:

Corporation

A corporation is a legal entity that is separate from its owners, offering limited liability to its shareholders and having the ability to own property, sue, and be sued.

Professional Corporation

A business entity formed by lawyers, doctors, accountants, and other professionals, offering certain tax and legal advantages.

Sole Proprietorship

A type of business ownership where a single individual owns, manages, and is responsible for all aspects of the business.

Partnership

An association of two or more persons to carry on as co-owners a business for profit.