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I need help with a business question.  Can anyone help me to fill in the proper...

mavimalik's profile pic

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I need help with a business question.  Can anyone help me to fill in the proper blanks, and explain the answer?


Firms earn revenue when________ (a) firms (b) households purchase ________(a)goods and services (b) factors of production in _________(a) markets for goods and services (b) markets for factors of productions

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ophelious's profile pic

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In order for you to understand the answer to this question, you need to have a good handle on the terms involved.  You essentially have only a few, so let's go over them:

  • Firms = Businesses
  • Households = Everyday people
  • Goods and Services = Products and labor (such as having someone cut your hair)
  • Factors of production = Materials that go into making products
  • Markets for goods and services = Stores
  • Markets for factors of production = Where businesses buy things like wood, metal, oil, and other parts (depending on what they are making.)

When you look at it from this angle, the answer is more clear (at least on the surface.)  Firms earn revenue when households purchase goods and services in markets for goods and services.  This is another way of saying that when people buy my products at the store, I make money because I made the products.

It's a little trickier than that, though.  In the grand scheme of things, a business can't make any money if it has no products to sell, and I can't make products unless I have the materials I need to put them together.  In this way, I could also say that "Firms earn revenue when firms purchase factors of production in markets for factors of production."  Do you see the logic?

I don't think that's the answer you're after, though.  Even though I will ultimately make money buying the factors of production, it's really an expenditure and not a form of revenue.  I just wanted you to see that, when it comes to the big picture, an argument could be made that either answer is correct.

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