Question 1

The board of a U.S. corporation usually includes&#10;A)outside directors.&#10;B)executives of competitors.&#10;C)non-executive employees of the corporation.&#10;D)All of the above.

Accepted Answer

The board of a U.S. corporation usually includes outside directors who are not executives or employees of the corporation. Executives of competitors or non-executive employees of the corporation are not typically included on the board.

Question 2

What is one of the biggest differences between a sole proprietorship and a corporation?&#10;A)Sole proprietorships offer stock.&#10;B)Corporation shareholders elect the managers of the firm.&#10;C)Sole proprietorships have limited liability.&#10;D)Corporations are the only profitable firms.

Accepted Answer

One of the biggest differences between a sole proprietorship and a corporation is that corporation shareholders elect the managers of the firm. In a sole proprietorship, the owner has complete control and decision-making power over the business. One of the biggest differences between a sole proprietorship and a corporation is that in a corporation, shareholders have the power to elect the managers of the firm. In a sole proprietorship, the owner has complete control over the management of the business. The other options are incorrect: A) Sole proprietorships do not offer stock; C) Sole proprietorships have unlimited liability, meaning the owner is personally responsible for all debts and obligations of the business; D) Corporations are not the only profitable firms, as sole proprietorships and partnerships can also be profitable.

Question 3

The board of a U.S. corporation usually includes&#10;A)outside directors.&#10;B)company executives.&#10;C)former politicians.&#10;D)All of the above.

Accepted Answer

The board of a U.S. corporation typically includes a mix of outside directors (who are not part of the company's day-to-day operations), company executives, and can also include former politicians, among others, to bring diverse perspectives and expertise.

Question 4

A mixed enterprise is one&#10;A)where the government has significant ownership in a private company.&#10;B)in which the company has more than one legal structure, such as limited liability and sole proprietorship.&#10;C)that combines for-profit activities with education.&#10;D)that has both for-profit and non-profit operations.

Accepted Answer

A mixed enterprise refers to a business entity where the government holds a significant ownership stake alongside private investors, combining elements of both public and private sectors.

Question 5

If a firm traded on the New York Stock Exchange posts an accounting profit of $10 million, then the firm is making a positive economic profit&#10;A)only if the Securities and Exchange Commission (SEC)approves the accounting report.&#10;B)only if the firm's opportunity cost is less than $10 million.&#10;C)only if the firm's opportunity benefit is more than $10 million.&#10;D)only if the firm's management receives stock compensation.

Accepted Answer

Accounting profit is only a measure of the firm's revenue minus expenses, while economic profit takes into account the opportunity cost of all resources used by the firm. If the firm's opportunity cost is higher than $10 million (i.e. the amount of profit posted), then the firm is not making a positive economic profit. Accounting profit only accounts for explicit costs, such as wages and rent, and does not take into consideration implicit costs, such as opportunity costs. Therefore, for a firm to truly have a positive economic profit, the firm's opportunity cost must be less than their accounting profit.

Question 6

If a firm makes zero economic profit, then the firm&#10;A)has total revenues greater than its economic costs.&#10;B)must shut down.&#10;C)can be earning positive accounting profit.&#10;D)must have no fixed costs.

Accepted Answer

Economic profit accounts for both explicit and implicit costs, including opportunity costs. If a firm makes zero economic profit, it means it's covering all its costs, including opportunity costs, but it can still have a positive accounting profit, which only considers explicit costs.

Question 7

A small business owner earns $50,000 in revenue annually. The explicit annual costs equal $30,000. The owner could work for someone else and earn $25,000 annually. The owner's business profit is ________ and the economic profit is ________.

A)$20,000, $20,000
B)$20,000, -$5,000
C)$25,000, -$5,000
D)$25,000, $20,000

Accepted Answer

The business profit is calculated as revenue minus explicit costs, which is $50,000 - $30,000 = $20,000. However, to calculate economic profit, we need to consider the opportunity cost of the owner's time. The owner could work for someone else and earn $25,000 annually, so the economic profit is $20,000 (revenue - explicit costs) - $25,000 (opportunity cost) = -$5,000. Therefore, the best choice is B as it represents the economic reality of the business.

Question 8

A firm sets its output where&#10;A)marginal profit is zero.&#10;B)marginal revenue is maximized.&#10;C)marginal profit equals marginal revenue.&#10;D)marginal profit is maximized.

Accepted Answer

Marginal profit is zero at the point where a firm maximizes its profit, as any additional unit produced would not increase profit.

Question 9

If a firm goes out of business because of negative economic profits, its books&#10;A)might indicate a positive accounting profit.&#10;B)might indicate that opportunity costs were zero.&#10;C)might indicate that taxes are too high.&#10;D)might suggest a mistaken value of explicit costs.

Accepted Answer

The firm's books might indicate a positive accounting profit because accounting profits only consider explicit costs and not opportunity costs. The negative economic profits, which include both explicit and implicit costs, would be the true measure of the firm's financial performance. A firm can have a positive accounting profit but still have negative economic profits when the opportunity costs of the resources used in production are taken into account. This means that the firm's revenue is not enough to cover its explicit and implicit costs, leading to losses and eventually bankruptcy. Therefore, the fact that a firm goes out of business does not necessarily mean that its books reflect a negative accounting profit.

Question 10

U.S. corporations can&#10;A)be publicly held and traded.&#10;B)be closely held.&#10;C)convert from publicly held to closely held.&#10;D)All of the above.

Accepted Answer

U.S. corporations can be publicly held and traded or closely held, and they also have the option to convert from publicly held to closely held. Therefore, all of the above choices are correct.

Question 11

Economists typically assume that the owners of firms wish to&#10;A)produce efficiently.&#10;B)maximize sales revenues.&#10;C)maximize profits.&#10;D)All of the above.

Accepted Answer

The answer of Economists typically assume that the owners of...

Question 12

Which of the following generally does NOT seek to maximize profit?&#10;A)Public sector companies&#10;B)Corporations&#10;C)Partnerships&#10;D)Sole proprietorships

Accepted Answer

The answer of Which of the following generally does NOT...

Question 13

An organization that converts inputs (like Labor, Capital etc.)into output can be a&#10;A)firm.&#10;B)sole proprietorship.&#10;C)corporation.&#10;D)All of the above.

Accepted Answer

The answer of An organization that converts inputs (like Labor,...

Question 14

Limited liability is a benefit available only to&#10;A)sole proprietorships.&#10;B)partnerships.&#10;C)corporations.&#10;D)All of the above.

Accepted Answer

The answer of Limited liability is a benefit available only...

Question 15

A small business owner earns $75,000 in revenue annually. The explicit annual costs equal $40,000. The owner could work for someone else and earn $20,000 annually. The owner's accounting profit is ________ and owner's economic profit is ________.

A)$10,000, $10,000
B)$35,000, $10,000
C)$35,000, $55,000
D)$10,000, $55,000

Accepted Answer

The answer of A small business owner earns $75,000 in...

Question 16

A ________ is a governance structure where owners are not personally liable.&#10;A)sole proprietorship&#10;B)partnership&#10;C)mixed enterprise&#10;D)corporation

Accepted Answer

The answer of A ________ is a governance structure where...

Question 17

A firm's profit is&#10;A)usually negative when opportunity costs are included.&#10;B)the difference between marginal revenue and marginal cost.&#10;C)the opportunity cost of the firm's shareholders.&#10;D)the difference between revenue and cost.

Accepted Answer

The answer of A firm's profit is&#10;A)usually negative when opportunity...

Question 18

A firm sets its output where&#10;A)marginal profit minus marginal cost equals zero (M&#960; - MC = 0).&#10;B)marginal revenue minus marginal profit equals zero (MR - M&#960; = 0).&#10;C)marginal revenue minus marginal cost equals zero (MR - MC = 0).&#10;D)marginal revenue minus marginal cost is greater than zero (MR - MC > 0).

Accepted Answer

The answer of A firm sets its output where&#10;A)marginal profit...

Question 19

Which entity produces the greatest proportion of U.S. gross domestic product?&#10;A)government&#10;B)non-profit organizations such as hospitals&#10;C)firms&#10;D)universities

Accepted Answer

The answer of Which entity produces the greatest proportion of...

Question 20

In which governance form do shareholders own the company?&#10;A)Public sector&#10;B)State-owned enterprise&#10;C)Corporation&#10;D)Non-profit

Accepted Answer

The answer of In which governance form do shareholders own...

Question 21

&#10;The above figure shows the cost curves for a competitive firm. If the profit-maximizing level of output is 40, price is equal to&#10;A)$0.&#10;B)$15.&#10;C)$10.&#10;D)$11.

Accepted Answer

The answer of  &#10;The above figure shows the cost...

Question 22

If a competitive firm maximizes short-run profits by producing some quantity of output, which of the following must be TRUE at that level of output?&#10;A)p = MC&#10;B)MR = MC&#10;C)p &#8805; AVC&#10;D)All of the above.

Accepted Answer

The answer of If a competitive firm maximizes short-run profits...

Question 23

&#10;The above figure shows the cost curves for a competitive firm. The firm will incur economic losses if the price is less than&#10;A)$0.&#10;B)$5.&#10;C)$10.&#10;D)$11.

Accepted Answer

The answer of  &#10;The above figure shows the cost...

Question 24

If marginal revenue equals marginal cost, the firm is maximizing profits as long as&#10;A)the resulting profits are positive.&#10;B)marginal cost exceeds marginal revenue for greater levels of output.&#10;C)the average cost curve lies above the demand curve.&#10;D)All of the above are required.

Accepted Answer

The answer of If marginal revenue equals marginal cost, the...

Question 25

If a competitive firm cannot earn a profit at any level of output during a given short-run period, then which of the following is FALSE?&#10;A)It will shut down in the short run and wait until the price increases sufficiently.&#10;B)It will exit the industry in the long run.&#10;C)It will operate at a loss in the short run.&#10;D)It will minimize its loss by decreasing output so that price exceeds marginal cost.

Accepted Answer

The answer of If a competitive firm cannot earn a...

Question 26

By shutting down, a firm&#10;A)stops receiving revenue but continues to pay variable costs.&#10;B)stops receiving revenue and is stuck with its fixed costs.&#10;C)avoids its sunk costs as well as its variable costs.&#10;D)can avoid paying taxes on its previously earned profits.

Accepted Answer

The answer of By shutting down, a firm&#10;A)stops receiving revenue...

Question 27

If a profit-maximizing firm finds that, at its current level of production, MR > MC, it will&#10;A)earn greater profits than if MR = MC.&#10;B)increase output.&#10;C)decrease output.&#10;D)shut down.

Accepted Answer

The answer of If a profit-maximizing firm finds that, at...

Question 28

If a competitive firm maximizes short-run profits by producing some quantity of output, which of the following must be TRUE at that level of output?&#10;A)p > MC&#10;B)MR > MC&#10;C)p &#8805; AVC&#10;D)All of the above.

Accepted Answer

The answer of If a competitive firm maximizes short-run profits...

Question 29

&#10;The above figure shows the cost curves for a competitive firm. If the firm is to earn economic profit, price must exceed&#10;A)$0.&#10;B)$5.&#10;C)$10.&#10;D)$11.

Accepted Answer

The answer of  &#10;The above figure shows the cost...

Question 30

A firm bought a pizza oven for $13,500 and if it shut down now, could sell the oven for $9,500. Which of the following statements is TRUE?&#10;A)The relevant cost of the oven when considering shutting down is $13,500.&#10;B)The relevant cost of the oven when considering shutting down is $9,500.&#10;C)The relevant cost of the oven when considering shutting down is $4,000.&#10;D)The cost of the oven does not matter when deciding whether or not to shut down.

Accepted Answer

The answer of A firm bought a pizza oven for...

Question 31

A firm will shut down in the short run if&#10;A)total fixed costs are too high.&#10;B)total revenue from operating would not cover all costs.&#10;C)total revenue from operating would not cover variable costs.&#10;D)total revenue from operating would not cover fixed costs.

Accepted Answer

The answer of A firm will shut down in the...

Question 32

&#10;The above figure shows the cost curves for a competitive firm. If the market price is $15 per unit, the firm will earn profits of&#10;A)$0.&#10;B)$4.&#10;C)$40.&#10;D)$160.

Accepted Answer

The answer of  &#10;The above figure shows the cost...

Question 33

If a profit-maximizing firm finds that, at its current level of production, MR < MC, it will&#10;A)decrease output.&#10;B)increase output.&#10;C)shut down.&#10;D)operate at a loss.

Accepted Answer

The answer of If a profit-maximizing firm finds that, at...

Question 34

A firm should always shut down if its revenue is&#10;A)declining.&#10;B)less than its average fixed costs.&#10;C)less than its total costs.&#10;D)less than its avoidable costs.

Accepted Answer

The answer of A firm should always shut down if...

Question 35

In deciding whether to operate in the short run, the firm must consider the relationship between price and&#10;A)total cost.&#10;B)average variable cost.&#10;C)total fixed cost.&#10;D)the number of buyers.

Accepted Answer

The answer of In deciding whether to operate in the...

Question 36

If a firm is operating at an output level where losses are minimized, the firm&#10;A)has no incentive to stay in the industry.&#10;B)is better of exiting the industry.&#10;C)is maximizing profits.&#10;D)will shut down.

Accepted Answer

The answer of If a firm is operating at an...

Question 37

&#10;The above figure shows the cost curves for a competitive firm. The firm will shut down in the short run if price falls below&#10;A)$5.&#10;B)$10.&#10;C)$11.&#10;D)$15.

Accepted Answer

The answer of  &#10;The above figure shows the cost...

Question 38

If a short-run fixed cost is sunk, then&#10;A)losses can be minimized by shutting down.&#10;B)the firm should keep producing to cover the sunk cost.&#10;C)the cost cannot be avoided by shutting down.&#10;D)Both B and C.

Accepted Answer

The answer of If a short-run fixed cost is sunk,...

Question 39

If a manager is unsure what the entire profit function looks like, then she can&#10;A)decrease output slightly to see if profits increase.&#10;B)increase output slightly to see if profits increase.&#10;C)Both A and B.&#10;D)None of the above.

Accepted Answer

The answer of If a manager is unsure what the...

Question 40

&#10;The above figure shows the cost curves for a competitive firm. If the firm is to operate in the short run, price must exceed&#10;A)$0.&#10;B)$5.&#10;C)$10.&#10;D)$11.

Accepted Answer

The answer of  &#10;The above figure shows the cost...

Question 41

A company that undertakes an activity so that it can &#34;do well by doing good&#34; is practicing&#10;A)strategic corporate social responsibility.&#10;B)altruistic corporate social responsibility.&#10;C)profit sharing.&#10;D)the survivor principle.

Accepted Answer

The answer of A company that undertakes an activity so...

Question 42

Firm managers use poison pills to&#10;A)make economics losses.&#10;B)acquire controlling interest in another firm.&#10;C)make the firm less attractive as a takeover target.&#10;D)force faster turnover on the board of directors.

Accepted Answer

The answer of Firm managers use poison pills to&#10;A)make economics...

Question 43

The present value of a loan is the&#10;A)amount of money the firm borrows today.&#10;B)amount of money the firm must earn to pay off the loan.&#10;C)future value plus interest.&#10;D)compounded value of the interest payments.

Accepted Answer

The answer of The present value of a loan is...

Question 44

If interest rates are high,&#10;A)money significantly in the future is worth very little today.&#10;B)money significantly in the future is worth a lot today.&#10;C)stock investors will not invest.&#10;D)firms will have low profits.

Accepted Answer

The answer of If interest rates are high,&#10;A)money significantly in...

Question 45

According to the survivor principle&#10;A)firms will get taken over by their larger rivals over time.&#10;B)only firms that maximize profits survive in highly competitive markets.&#10;C)managers only work hard if they are threatened with their survival at the firm.&#10;D)eventually all firms merge to become one large monopoly.

Accepted Answer

The answer of According to the survivor principle&#10;A)firms will get...

Question 46

If a firm sets marginal revenue equal to marginal cost it will make an economic profit.

Accepted Answer

The answer of If a firm sets marginal revenue equal...

Question 47

If the present value of all future revenue is positive, then&#10;A)the firm should remain operating, even if it earns negative profit in the short run.&#10;B)the firm should shut down if it is earning a negative profit in the short run.&#10;C)the firm should shut down if it cannot cover its fixed costs in the short run.&#10;D)Unable to determine with the information given.

Accepted Answer

The answer of If the present value of all future...

Question 48

The future value of a loan is the&#10;A)present value plus the interest rate.&#10;B)amount of money the firm repay.&#10;C)value of the profits the firm will earn from investing the loan.&#10;D)compounded value of the interest payments.

Accepted Answer

The answer of The future value of a loan is...

Question 49

The present value and future value of a loan&#10;A)have no relationship.&#10;B)are connected through compounding.&#10;C)represent the difference between income flows over time.&#10;D)are connected through the interest rate.

Accepted Answer

The answer of The present value and future value of...

Question 50

If a firm can borrow money at 0% interest, then&#10;A)the lender is irrational.&#10;B)its business investment is guaranteed to be profitable.&#10;C)present value and future value are equal.&#10;D)interest payments are deferred.

Accepted Answer

The answer of If a firm can borrow money at...

Question 51

If a firm doesn't make an economic profit, it will shut down.

Accepted Answer

The answer of If a firm doesn't make an economic...

Question 52

A firm's vertical dimension refers to&#10;A)its ability to grow its profits.&#10;B)the size of its headquarters building.&#10;C)the degree to which it participates in the various stages of producing the products and services it sells.&#10;D)the downstream stages of production.

Accepted Answer

The answer of A firm's vertical dimension refers to&#10;A)its ability...

Question 53

If the market price in a competitive market is below the minimum of average variable cost, the firm will shut down.

Accepted Answer

The answer of If the market price in a competitive...

Question 54

Corporate Social Responsibility&#10;A)is illegal in most countries.&#10;B)minimizes conflict between owners and managers.&#10;C)is the pursuit of social objectives by corporations.&#10;D)disputes the stakeholder theory of R. Edward Freeman.

Accepted Answer

The answer of Corporate Social Responsibility&#10;A)is illegal in most countries.&#10;B)minimizes...

Question 55

Ronald McDonald Houses are an example of&#10;A)altruistic corporate social responsibility.&#10;B)reduction in shareholder value.&#10;C)vertical integration.&#10;D)strategic corporate social responsibility.

Accepted Answer

The answer of Ronald McDonald Houses are an example of&#10;A)altruistic...

Question 56

The survival principle states that&#10;A)firms must undertake social objectives to survive.&#10;B)the only firms that survive are those that maximize profits.&#10;C)the only firms that survive are those that maximize revenue.&#10;D)managers who fail to maximize profits should be disciplined.

Accepted Answer

The answer of The survival principle states that&#10;A)firms must undertake...

Question 57

If a firm cannot earn profits in the short run, it will shut down.

Accepted Answer

The answer of If a firm cannot earn profits in...

Question 58

Even though fixed costs do not affect the output decision, an increase in fixed costs results in a wider range of prices for which the firm operates at a loss.

Accepted Answer

The answer of Even though fixed costs do not affect...

Question 59

If the present value of all future profit is positive, then&#10;A)the firm should remain operating, even if it earns negative profit in the short run.&#10;B)the firm should shut down if it is earning a negative profit in the short run.&#10;C)the firm should shut down if it cannot cover its fixed costs in the short run.&#10;D)None of the above.

Accepted Answer

The answer of If the present value of all future...

Question 60

Strategic ESG is intended to&#10;A)increase profits while doing something good at the same time.&#10;B)follow Milton Friedman's guidance on firm behavior.&#10;C)be purely altruistic in nature.&#10;D)avoid the legal and ethical obligations managers have to shareholders.

Accepted Answer

The answer of Strategic ESG is intended to&#10;A)increase profits while...

Question 61

Vertically integrated firms can use transfer pricing&#10;A)to avoid government price controls.&#10;B)as a way to compensate managers for transferring among departments in a vertically integrated firm.&#10;C)to avoid paying market prices for inputs.&#10;D)to shift profit.

Accepted Answer

The answer of Vertically integrated firms can use transfer pricing&#10;A)to...

Question 62

Vertical integration can&#10;A)lower transaction costs due to lower costs of writing and enforcing contracts.&#10;B)increase management costs and complexity.&#10;C)reduce problems between owners and managers.&#10;D)All of the above.

Accepted Answer

The answer of Vertical integration can&#10;A)lower transaction costs due to...

Question 63

A firm's horizontal dimension refers to&#10;A)its size in its primary market.&#10;B)its size in all markets in which is competes.&#10;C)the level of supply chain integration the firm undertakes.&#10;D)the number of stages in the production process that are upstream from the stages the firm undertakes.

Accepted Answer

The answer of A firm's horizontal dimension refers to&#10;A)its size...

Question 64

Firms might vertically disintegrate when&#10;A)it becomes more profitable for a firm to specialize.&#10;B)the IRS cracks down on transfer pricing.&#10;C)the industry becomes too large to support itself.&#10;D)the industry shrinks in size.

Accepted Answer

The answer of Firms might vertically disintegrate when&#10;A)it becomes more...

Deck 7: Firm Organization and Market Structure