Chapter 7 Review

Economics

1

•The person or group that buys a franchise.

•Franchisee

2

•A business owned by two or more co-owners.

•Partnership.

3

•Putting forth less than the agreed-to effort.

• shirking

4

•An important decision-making body in a corporation.

•Board of directors.

5

• A condition in which an owner of a business firm can lose only the amount he or she has invested.

• Limited liability.

6

•List the formula for calculating profit or loss.

•TR – TC = profit

7

• Many firms make supervisors _________. This means they receive excess profits as income.

• Residual claimants

8

• Issuing debt is another name for a _______.

•Bond.

9

• A person who owns shares of stock in a corporation.

• Shareholder or stockholder

10

•This type of business can sell stocks and bonds.

•Corporation.

11

• A law that states that if additional units of one resource are added to another resource in fixed supply, eventually the additional output will decrease.

• Law of diminishing marginal returns.

12

• With this type of ownership structure, the profit is taxed only 1 time.

• Sole proprietorship & partnership

13

• Income is taxed twice under this type of ownership structure.

•Corporation.

14

•List the formula for marginal revenue.

•Change in TR/change in Q = MR

15

• A cost that changes with the number of units of a good produced.

• Variable cost.

16

• List a benefit of opening a franchise as opposed to a non-franchise business.

• National advertising, established brand

17

• A legal entity that can conduct business in its own name in the same way that an individual does.

• Corporation.

18

• A business that is owned by one individual who makes all business decisions.

• Sole proprietorship

19

• The entity that offers a franchise.

• Franchiser.

20

• List the formula for average total cost.

• TC/Q=ATC

21

• A contract by which a firm lets a person or group use its name and sell its good in exchange for certain payments & requirements.

• Franchise

22

• List the formula for marginal cost.

• Change in TC/change in Q = MC

23

• List the three types of ownership structures we discussed in chapter 7.

• Sole proprietorship

• Partnerships

• Corporations

24

• List an advantage of the partnership compared to the sole proprietorship.

• More people to help raise capital

• Specialization of labor

25

• List additional costs associated with opening & running a franchise.

• Franchise fee

• Royalties

• Meeting franchise standards

26

• What is Ralph Nader’s view on social responsibility in business?

• Helping yourself helps others.

27

• List an example of a stock market.

• AMEX, NASDAQ, & NYSE

28

• When a corporation first sells stock. The stock is being purchased from the corporation, not another investor.

• Initial Public Offering (IPO)

29

• A cost or expense that is the same no matter how many units of a good are produced.

• Fixed cost.

30

• Joe hired a 10th worker at his small business. He has not seen an increase in production. This is an example of the

• Law of diminishing marginal returns

Chapter 7 Review

True/False Statements

31

• Business firms exist whenever people working together can produce more than the sum of what an individual working alone can produce.

• True

32

• The person in the firm who shirks his or her duty is called the monitor.

• False

33

• Under a sole proprietorship, all decision-making power resides with the board of directors.

• False

34

• In a partnership, the benefits of specialization of labor can be realized.

• True

35

• Corporations are subject to triple taxation.

• False

36

• All businesses have costs, and all costs are the same.

• False

37

• Expenses that are the same, no matter how many units of a good are produced, are called fixed costs.

• True

38

• Average total cost is total cost divided by variable costs.

• False

39

• Marginal cost is the additional cost of producing an additional unit of a good.

• True

40

• Marginal revenue is the additional revenue from selling an additional unit of a good.

• True

41

• Marginal revenue equals the change in total cost divided by change in total revenue.

• False

42

• A firm will produce a good only if a profit will be made.

• True

43

• The difference between total cost and total revenue is profit or loss.

• True

44

• When one worker leads to an increase in total revenue, this is an example of the law of diminishing returns.

• False