Question 1

Firm strategies for coping with the principal-agent problem are
A)ownership, incentive pay, and long-term contracts.
B)sole proprietorship, partnership, and the corporation.
C)economies of scale, scope, and team production.
D)technology, information, and the market.
E)ownership, scope, and the market.

Accepted Answer

Ownership provides owners with direct control over the firm and its performance, reducing the principal-agent problem. Incentive pay aligns the interests of agents with those of owners by linking pay to performance, and long-term contracts help ensure that agents are committed to achieving long-term goals rather than short-term gains.

Question 2

Use the table below to answer the following questions.
Table 10.4.1
 
-Refer to Table 10.4.1.The four-firm concentration ratio for the pizza sellers is
A)40 percent.
B)100 percent.
C)80 percent.
D)33 percent.
E)12.5 percent.

Accepted Answer

The four-firm concentration ratio is the sum of the market share percentages of the four largest firms in the market. In this case, the four largest firms are Pizza Hut, Domino's, Papa John's, and Little Caesars, with market share percentages of 20%, 18%, 22%, and 20% respectively. The four-firm concentration ratio is therefore 80%.

Question 3

Mr.Brown opens his restaurant as a sole proprietorship.After a year of disastrous reviews,he has gone deeply into debt.His liability is
A)zero;he has already lost all his money.
B)the amount of his original investment.
C)limited only by his entire wealth.
D)limited to assets owned by the restaurant.
E)depends upon how much money he has in his savings account.

Accepted Answer

The answer of Mr.Brown opens his restaurant as a sole...

Question 4

Susan invests $1,000 to buy shares of TooNew stock.The company declares bankruptcy,leaving many debts unpaid,including Susan's $1,000 investment.Susan has a personal net worth of $50,000.What will be Susan's final net worth if TooNew has total unpaid debts of $30,000?
A)$19,000
B)$21,000
C)$49,000
D)$51,000
E)$20,000

Accepted Answer

Susan's final net worth will be her personal net worth minus her lost investment, which is $50,000 - $1,000 = $49,000. The total unpaid debts of TooNew have no effect on Susan's net worth.

Question 5

Which one of the following statements describes a market that is monopolistically competitive?
A)The presence of significant barriers to entry.
B)The products produced by the firms are identical.
C)Many firms compete by making similar but slightly different products.
D)There is a small number of large firms.
E)The product produced by one firm has no close substitutes.

Accepted Answer

A monopolistically competitive market has many firms producing similar but slightly differentiated products, allowing for competition but also some degree of market power through product differentiation. Significant barriers to entry are more characteristic of a monopoly or oligopoly, while identical products define a perfectly competitive market. A small number of large firms would be indicative of an oligopoly, and the lack of close substitutes would be more characteristic of a monopoly.

Question 6

A firm with one or more owners of limited liability is
A)a sole proprietorship.
B)a partnership.
C)a conglomerate.
D)a corporation.
E)a public company.

Accepted Answer

A firm with one or more owners of limited liability is a corporation. This means that the owners (shareholders) are not personally responsible for the debts and liabilities of the corporation beyond their investment in the company.

Question 7

Firms cope with uncertainty and incomplete information by using
A)sole proprietorship, limited liability, and market coordination.
B)ownership, incentive pay, and long-term contracts.
C)team production, economies of scale, and transactions costs.
D)the market, the firm, and internal organization.
E)team production, economies of scale, and transaction costs.

Accepted Answer

The answer of Firms cope with uncertainty and incomplete information...

Question 8

An example of the principal-agent problem occurs when
A)an agent is more motivated than the principle to provide a high-quality good or service.
B)managers try to cope with employees that are inefficient.
C)sole proprietors don't receive any money payment for their entrepreneurial skills.
D)managers devise penalties that eliminate employee waste.
E)managers devise incentives that encourage employees to act in the owner's behalf.

Accepted Answer

Managers devise incentives that encourage employees to act in the owner's behalf.

Question 9

Use the table below to answer the following questions.
Table 10.4.1
 
-Refer to Table 10.4.1.The four-firm concentration ratio for taco stands is
A)15 percent.
B)100 percent.
C)80 percent.
D)33 percent.
E)30 percent.

Accepted Answer

The answer of Use the table below to answer the...

Question 10

The principal-agent problem exists when
A)there is no command system in place.
B)firms operate as sole proprietorships.
C)agents do not act in the best interest of principals.
D)principals do not act in the best interest of agents.
E)the future value of money is more than its current value.

Accepted Answer

The principal-agent problem occurs when agents (employees or managers) do not act in the best interest of principals (shareholders or owners). This can occur due to information asymmetry, where agents have more information than principals, or conflicting incentives between the two parties. This can lead to agency costs and potential harm to the overall performance of the organization.

Question 11

Firms organize production by using
A)command systems only.
B)incentive systems only.
C)command and incentive systems.
D)market systems only.
E)principal-agent systems only.

Accepted Answer

Firms often use a combination of command and incentive systems to organize production. Command systems involve giving orders and instructions to workers, while incentive systems offer rewards to workers who meet certain performance goals. This combination allows firms to provide direction and motivation to workers, leading to more efficient production. Market systems and principal-agent systems may also play a role in organizing production for some firms, but they are not typically the primary methods used.

Question 12

A golf club manufacturer pays its workers based on the number of sets of clubs they produce.This firm
A)organizes production based on a command system.
B)does not have a principal-agent problem.
C)is a sole proprietorship.
D)organizes production based on an incentive system.
E)is a corporation.

Accepted Answer

The fact that the workers are paid based on the number of sets of clubs they produce indicates that the firm is using an incentive system to organize production.

Question 13

Which one of the following is an advantage of a corporation relative to a proprietorship or partnership?
A)Owners have limited liability.
B)Profits are taxed once.
C)difficult to raise money
D)no principal-agent problems
E)None of the above.

Accepted Answer

The advantage of a corporation over a proprietorship or partnership is that owners have limited liability, meaning their personal assets are protected in case the business incurs debt or faces legal action. Proprietorships and partnerships, on the other hand, have unlimited liability, which means that personal assets can be used to settle business debts or legal claims.

Question 14

A sole proprietorship
A)dies with the owner.
B)is the same as a partnership.
C)always bring a higher return to its owner than a corporation brings to its owners.
D)is a not-for-profit firm.
E)has a complex management structure.

Accepted Answer

A sole proprietorship is owned and operated by a single individual, and therefore, it ceases to exist in the event of the owner's death.

Question 15

Federal Express enters into contracts with independent truck operators who offer FedEx service and who are rewarded by the volume (cubic feet)of packages they carry.
FedEx does not hire more independent drivers because
A)it is concerned about a possible downturn in the economy and the effects of overexpansion.
B)it cannot afford more trucks and more drivers.
C)of the principal-agent problem.
D)it is a corporation, so it wants to have a limited number of independent truck owners operating as proprietorships.
E)trucks are not a technologically efficient method of transporting parcels.

Accepted Answer

The principal-agent problem refers to the challenge of motivating agents (in this case, independent truck operators) to act in the best interest of the principal (in this case, FedEx). Hiring more independent drivers would exacerbate this problem, as it becomes increasingly difficult to align the interests of many different agents with those of the principal.

Question 16

The possibility that an employee may not work hard is an example of the
A)limited liability problem.
B)principal-agent problem.
C)transactions cost problem.
D)technological efficiency problem.
E)partnership problem.

Accepted Answer

The principal-agent problem arises when the interests of the principal (such as a firm's owners or managers) and the agent (such as its employees) are not aligned. This can lead to the agent not acting in the best interest of the principal, such as when an employee does not work as hard as they could.

Question 17

One difference between perfect competition and monopolistic competition is
A)firms in a perfectly competitive market produce similar but slightly different products.
B)in perfect competition, the product produced has no close substitutes.
C)monopolistic competition has barriers to entry, whereas perfect competition has none.
D)firms in monopolistic competition have some degree of market power.
E)a small number of firms compete in a monopolistically competitive market and a large number of firms compete in a perfectly competitive market.

Accepted Answer

The key difference between perfect competition and monopolistic competition is that firms in monopolistic competition have some degree of market power, meaning they can control the price of their product to some extent. In perfect competition, no single firm has the ability to influence the market price.

Question 18

What is a disadvantage of a corporation relative to a sole proprietorship or partnership?
A)Owners have unlimited liability.
B)Profits are taxed twice;as corporate profits and as dividend income and capital gains to stockholders.
C)high cost of capital
D)perpetual life
E)None of the above.

Accepted Answer

A disadvantage of a corporation relative to a sole proprietorship or partnership is that profits are taxed twice; as corporate profits and as dividend income and capital gains to stockholders.

Question 19

It is a disadvantage of ________ that retained profits are taxed twice.
It is a disadvantage of ________ that bad decisions are not checked by the need for consensus.
A)a sole proprietorship;both a partnership and a sole proprietorship
B)a corporation;a sole proprietorship
C)both a partnership and a sole proprietorship;a partnership
D)a corporation;both a partnership and a sole proprietorship
E)both a corporation and a partnership;a sole proprietorship

Accepted Answer

The first disadvantage mentioned (retained profits being taxed twice) applies only to corporations, eliminating choices A, C, D, and E. The second disadvantage (bad decisions not being checked by the need for consensus) applies specifically to partnerships, leaving only choice B as the correct answer.

Question 20

A firm with two or more owners who have unlimited liability is
A)a sole proprietorship.
B)a partnership.
C)a conglomerate.
D)a corporation.
E)a public company.

Accepted Answer

A partnership is a business structure in which two or more individuals own and operate the business. Each partner has unlimited liability, which means that they are personally responsible for all of the business's debts and obligations. This is different from a corporation, which is a separate legal entity that offers limited liability protection to its owners.

Quiz 10: Organizing Production

Firm strategies for coping with the principal-agent problem are

Use the table below to answer the following questions. Table 10.4.1 -Refer to Table 10.4.1.The four-firm concentration ratio for the pizza sellers is

Mr.Brown opens his restaurant as a sole proprietorship.After a year of disastrous reviews,he has gone deeply into debt.His liability is

Susan invests $1,000 to buy shares of TooNew stock.The company declares bankruptcy,leaving many debts unpaid,including Susan's $1,000 investment.Susan has a personal net worth of $50,000.What will be Susan's final net worth if TooNew has total unpaid debts of $30,000?

Which one of the following statements describes a market that is monopolistically competitive?

A firm with one or more owners of limited liability is

Firms cope with uncertainty and incomplete information by using

An example of the principal-agent problem occurs when

Use the table below to answer the following questions. Table 10.4.1 -Refer to Table 10.4.1.The four-firm concentration ratio for taco stands is

The principal-agent problem exists when

Firms organize production by using

A golf club manufacturer pays its workers based on the number of sets of clubs they produce.This firm

Which one of the following is an advantage of a corporation relative to a proprietorship or partnership?

A sole proprietorship

Federal Express enters into contracts with independent truck operators who offer FedEx service and who are rewarded by the volume (cubic feet) of packages they carry. FedEx does not hire more independent drivers because

The possibility that an employee may not work hard is an example of the

One difference between perfect competition and monopolistic competition is

What is a disadvantage of a corporation relative to a sole proprietorship or partnership?

It is a disadvantage of that retained profits are taxed twice. It is a disadvantage of that bad decisions are not checked by the need for consensus.

A firm with two or more owners who have unlimited liability is