In the context of competitive markets, what is a key advantage of using joint stock companies compared to mercantile capitalism?

• A. Joint stock companies guarantee higher profits for all shareholders.
• B. Joint stock companies restrict entry into markets, increasing monopoly power.
• C. Joint stock companies allow for the pooling of capital from multiple investors, reducing individual risk.
• D. Joint stock companies eliminate the need for government regulation in markets.

Answer: (C)

Verified step by step guidance

1. Understand the context: Competitive markets are characterized by many buyers and sellers, free entry and exit, and firms that are price takers.
2. Define mercantile capitalism: It is an early form of capitalism where trade and commerce were dominated by individual merchants or small groups, often with limited capital and higher individual risk.
3. Define joint stock companies: These are business entities where ownership is divided into shares held by multiple investors, allowing them to pool capital together.
4. Identify the key advantage: Joint stock companies reduce individual risk by spreading investment across many shareholders, enabling larger capital accumulation and investment in bigger projects.
5. Compare to other options: Recognize that joint stock companies do not guarantee higher profits for all shareholders, do not inherently restrict market entry or increase monopoly power, and do not eliminate the need for government regulation.