Why did the formation of corporations allow big businesses to increase in power and profitability?

• A. Corporations enabled businesses to raise large amounts of capital by selling shares to many investors.
• B. Corporations required all profits to be distributed equally among employees.
• C. Corporations limited the ability of businesses to expand into new markets.
• D. Corporations prevented businesses from taking on any debt.

Answer: (A)

Verified step by step guidance

1. Step 1: Understand the concept of a corporation in microeconomics. A corporation is a legal entity that is separate from its owners, allowing it to own assets, incur liabilities, and sell shares to investors.
2. Step 2: Recognize that corporations can raise capital by issuing shares of stock to many investors. This process allows businesses to gather large amounts of funding from a wide pool of shareholders.
3. Step 3: Analyze how raising capital through shares benefits big businesses. With more capital, corporations can invest in new technologies, expand operations, and enter new markets, increasing their power and profitability.
4. Step 4: Contrast this with other options: corporations do not require profits to be distributed equally among employees, nor do they inherently limit expansion or prevent taking on debt. These statements are incorrect in explaining the growth of corporations.
5. Step 5: Conclude that the key reason corporations increased business power and profitability is their ability to raise large amounts of capital by selling shares to many investors.