In the world of guitar sales there are many business firms, organizations that use resources to produce goods and services that are sold to consumers, other businesses, or the government. Epiphone, Gibson, Fender and Marshall are just a few of the many numerous and diverse guitar business firms in the guitar industry. Right now, Fender is putting forth less effort into their guitars than they used to and that's why their sales are going down. This is called shirking, when less effort is put forth than what was agreed to. This effects the whole industry, because their sales fall overall and make the business firm less efficient at what it is they do, possibly ending up in a lower salary. A sole proprietorship is a business that is owned by an individual, who makes all the business decisions, receives all the profits or takes all the losses of the firm, and is legally responsible for the debts of the firm. Gibson used to be a sole proprietorship made and run by an individual witht he last name Gibson. Once, he died though, the business was taken over by his children and other business partners that were close friends. But, at the time it was a sole proprietorship Mr. Gibson took all profit, losse and was legally responsible for all debts of the firm. Once he deceased, the business was made into a partnership by his children, who inherited the business. A partnership is a business that is owned by two or more co-owners, called partners, who share any profits the business earns and are legally responsible for any debts incurred by the firm. Fender is an example of a corporation, which is a legal entity that can conduct business in its own name in the same way that an individual does and is owned by it's stockholders. Stockholders are people who buy shares of stock in a corporation. There are many stockholders that invest into Fender, because of their great success. These stock holders own some stock of the corproation that they invest in, putting a claim on the assets of the corporation. Assets are anything of value to which the firm has legal claim, such as guitars, amps, cords, pedals and other products they may produce. The owners of a corporation are not personally liable for the debts of their corporation, but thay have limited liability, meaning that they can not be sued for the corporation's failure to pay it's debts. One of the important decision-making bodies in a corporation is the board of directors, who determine corporate policies and goals. All corporations have a board of directors, including guitar corporations, it is manditory. There is also a franchise. A franchise is a contract by which a firm (usually a firm) lets a person or group use it's name and sell it's goods and services. Gibson is an example of a franchise that sells it's name so that smaller companies may get better sales, when they sold their name to Epiphone. The franchiser is the entity that offer the franchise. In this situation the frnachiser would be Gibson. The franchisee is the person or group that buys the franchise. In this situation the franchisee is Epiphone, because they bought Gibson's name.

Some guitar companies put fixed costs on a few of their products, meaning that no matter how many of that product are made, the price never goes up. This keeps products at a reasonable price, so that consumers do not complain. But, most products are under a variable cost policy, meaning the cost of the product will vary with the number of units of the good produced. When fixed costs and variable costs are added together the total cost is accumulated. You can get an average total cost by dividing the total cost by the quantity of the output. The change in total cost that results from producing an additional unit of output is called marginal cost. Any price that goes up due to producing an additional unit in economics will result in a marginal cost.

The change in total revenue that results from selling an additional unit of output is marginal revenue. This is, basically, the opposite of marginal cost, which I explained earlier. The economic law, the law of diminishing economic returns states that if we add additional units of a resource to another resource that is in fixed supply, eventually the additional output produced will decrease.