Chapter 7 Review Economics

The person or group that buys a franchise. Franchisee 1 The person or group that buys a franchise. Franchisee

A business owned by two or more co-owners. Partnership. 2 A business owned by two or more co-owners. Partnership.

Putting forth less than the agreed-to effort. shirking 3 Putting forth less than the agreed-to effort. shirking

An important decision-making body in a corporation. 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.

List the formula for calculating profit or loss. TR – TC = profit 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

Issuing debt is another name for a _______. Bond. 8 Issuing debt is another name for a _______. Bond.

A person who owns shares of stock in a corporation. 9 A person who owns shares of stock in a corporation. Shareholder or stockholder

This type of business can sell stocks and bonds. 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.

Sole proprietorship & partnership 12 With this type of ownership structure, the profit is taxed only 1 time. Sole proprietorship & partnership

Income is taxed twice under this type of ownership structure. 13 Income is taxed twice under this type of ownership structure. Corporation.

List the formula for marginal revenue. Change in TR/change in Q = MR 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

The entity that offers a franchise. Franchiser. 19 The entity that offers a franchise. Franchiser.

List the formula for average total cost. TC/Q=ATC 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

True/False Statements 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