Which of the following is a characteristic of a corporation but not of a small family-owned business?
A) The firm buys inputs in markets for the factors of production.
B) The firm sells output in markets for goods and services.
C) The firm is guided in its decisions by the objective of profit maximization.
D) The firm faces a principal-agent problem created by the separation of ownership and control.

Question

Quizplus · Accepted Answer

A small family-owned business is typically owned and controlled by the same individuals, meaning there is no separation of ownership and control. Therefore, they do not face a principal-agent problem. However, a corporation is owned by shareholders but is run by managers, leading to a potential conflict of interest and the need to address the principal-agent problem. Choices A, B, and C are all characteristics that both corporations and small family-owned businesses share.

Which of the Following Is a Characteristic of a Corporation