Question 1

A is an organization that is owned and controlled by the people who use it-producers, consumers and workers with similar needs pool their resources for mutual gain.

Accepted Answer

The definition given best describes a cooperative, which is an organization owned and controlled by its members. The members pool their resources for mutual gain and have an equal say in the decision-making process. A corporation is owned by shareholders, a limited partnership has both general and limited partners, and a mutual fund pools money from multiple investors to invest in securities.

Question 2

Which of the following statements about farm cooperatives is most accurate? Farm cooperatives have:

Accepted Answer

Farm cooperatives have actually become a major force in American agriculture, with a significant portion of agricultural products being marketed through cooperatives.

Question 3

In rural areas electrical power is often sold by that take advantage of the government's policy to sell them electricity at wholesale rates.

Accepted Answer

Cooperatives are typically formed by a group of individuals or businesses with similar needs who pool resources to provide a service. In the case of rural areas, electrical power cooperatives are often established to take advantage of the government's policy to sell electricity at wholesale rates. These cooperatives then distribute the electricity to members at a lower cost than they would have to pay if they were buying electricity directly from a utility company.

Question 4

A distinguishing feature of a cooperative is that it:

Accepted Answer

A cooperative is a business that is owned and run by its members, who use its services or products. Therefore, option C is the correct answer as it highlights the key distinguishing feature of a cooperative as being owned and operated by the people who use it, rather than by external shareholders or investors. Options A, B, and D are all incorrect as they do not properly describe a cooperative.

Question 5

Twenty-six years ago, several small vineyard owners in California joined voluntarily to market their grapes and wine in an attempt to get better prices. Over the years they expanded the organization to include other services such as buying and selling farm supplies and equipment and providing financial and technical services. The arrangement established by these vineyard owners is an example of a(n):

Accepted Answer

The arrangement established by the vineyard owners is a farm cooperative as it involves small farmers joining together voluntarily to market their products and obtain better prices, as well as providing other services such as buying and selling supplies and equipment.

Question 6

Jenna plans to invest in a cleaning service franchise called "Spare Time". At her first interview with the franchisor's selling agent, she learned that the parent company expects royalties of 5%. These are:

Accepted Answer

Royalties are typically a percentage share of revenues (or sometimes profits) that a franchisee must pay to the franchisor. This choice best describes what royalties are in this context. Options A and B are not correct as they do not align with the definition of royalties, and option C describes commissions which are separate from royalties.

Question 7

Some ask members/customers to work at the organization for a number of hours a month as part of their duties.

Accepted Answer

Cooperatives often require members to work a certain number of hours per month as part of their contributions to the organization. This helps promote a sense of community and shared responsibility among members.

Question 8

Franchising has certainly become a key component of the U.S. economy. What are the major advantages and disadvantages of franchising?

Accepted Answer

The answer of Franchising has certainly become a key component...

Question 9

Daggie's Sandwiches, Inc., sells the rights to use its name and sell its sandwiches in a given market area to aspiring business people who are willing to pay agreed upon fees and meet certain contractual terms. Daggie's:

Accepted Answer

Daggie's Sandwiches, Inc., is a franchisor as it is selling the rights to use its name and sell its sandwiches in a specific market area to individuals who are willing to pay the fees and meet contractual terms, commonly known as franchisees.

Question 10

People who form cooperatives:

Accepted Answer

Cooperatives are formed by individuals who want to come together and work towards a common goal, rather than having a traditional structure with separate owners, managers, and customers. While cooperatives may have their own values and beliefs about government involvement in the economy, this is not the defining characteristic of forming a cooperative. Additionally, cooperatives may still compete in the market, but they prioritize cooperation among members. The idea of supplying basic necessities for free to everyone is not practical or feasible for cooperatives, as they still operate within a market system.

Question 11

Midas Muffler sells franchises to prospective businesspersons who want to use the Midas name and offer Midas products. In a franchise arrangement, Midas would be the , and the buyer of the franchise is the .

Accepted Answer

In a franchise arrangement, the company offering the franchise is the franchisor, while the individual or organization buying the franchise is the franchisee. Therefore, the best choice is C.

Question 12

Which of the following people would be most interested in participating in a business organized as a cooperative?

Accepted Answer

A cooperative is a business organization where members share in the ownership and control of the company, as well as the profits. Joe's interest in combining his time and resources with others to operate a business aligns with the structure and purpose of a cooperative. Joan, on the other hand, does not want to take an active role in managing or participating in a company, which is a key aspect of being a member-owner in a cooperative. Jeff's belief in government ownership and Jennifer's preference for working for a charitable organization are not related to the cooperative business model.

Question 13

Sierra is interested in becoming a franchise owner, by opening and operating one of 50 Cactus Katie's Grills, a very successful fast food chain specializing in food dishes from the American southwest. Which of the following problems is Sierra most likely to encounter if she agrees to become a franchisee?

Accepted Answer

Becoming a franchisee usually involves paying high initial costs and fees to the franchisor. This can include fees for using the brand name, training, equipment, and other expenses. These costs can be a significant financial burden for new franchisees. In comparison, while poor name recognition and visibility, lack of financing, and lack of managerial assistance can be potential problems, they are not as inherent in the franchise model as high initial costs and fees.

Question 14

In a cooperative, members/customers:

Accepted Answer

In a cooperative, members/customers democratically control their businesses by electing a board of directors. This means they have a say in the decisions made by the business and can elect representatives to manage the company on their behalf. Cooperative members are not limited partners (B) and do not have unlimited liability for the debts of the firm (C). Members may take turns serving on the board, but it is not a requirement (D).

Question 15

Mini-Case
For as long as she could remember, Jenna Raiter's passion was cars. As a teenager, she spent hours with her dad tinkering with the family car, learning to change the oil and making minor repairs. She got a job at a local garage while still in high school. A few years after graduating from high school and completing the auto mechanics degree at a local community college, Jenna decided she wanted to be her own boss. She quit her job, borrowed some money from her dad, and began her own repair shop, the AutoMotion Garage. Jenna's hard work gradually attracted a loyal clientele of satisfied customers. Her success has her thinking about opening garages in two other locations, but she lacks the financial resources needed for expansion. Furthermore, the success of her business is forcing Jenna to spend more time managing the business and less time doing the actual technical work she still enjoys. She wants to find business partners who can help her with management and provide additional financial resources. She has approached a couple of friends she met in high school:
Al Ternator and Lew Banfilter, to see if they would like to join the business.
-Jenna approached Al Ternator about joining the business as an owner. She proposed that she continue to provide the technical expertise and deal directly with customers, while Al, who has a college degree in finance, handles many of the financial aspects of running AutoMotion. In addition, Jenna wants Al to contribute some much-needed money for expansion. Under Jenna's proposal, she and Al would operate the business together as:

Accepted Answer

Based on Jenna's proposal, she and Al would be co-owners of the business and both actively involved in its management. This scenario describes a general partnership, where both partners have equal control and responsibility for the business. Limited partnership involves at least one general partner who manages the business and one or more limited partners who only provide financial resources. Majority shareholders refer to individuals or entities that own a majority of the shares of a corporation, which is not relevant to this scenario. Business consultants typically provide professional advice to a business, but do not have an ownership stake in the company.

Question 16

Greg plans to open up three Hottie Pata′tee franchises in the greater Denver area. He just informed you that he plans to negotiate with the franchisor to eliminate the Big Potato Head that graces the roof of these restaurants. Greg is likely to learn that:

Accepted Answer

Franchisors often have strict rules and guidelines for their franchisees to follow, including branding and signage requirements. It is unlikely that the franchisor will negotiate on this issue, as it may compromise the consistency and recognition of their brand. Additionally, the start-up cost break mentioned in option A is unlikely, as the cost of the sign is likely outweighed by the benefits it provides in terms of brand recognition and marketing. Option B is partially true, as the quality of the product is important for attracting customers, but branding and signage also play a significant role in establishing brand recognition and attracting customers. Option D is also true, as franchises generally have a lower failure rate than independently owned businesses, but this does not directly relate to the issue of signage and branding.

Question 17

The purpose of a farm cooperative is to:

Accepted Answer

The purpose of a farm cooperative is to give members more economic power as a group than they would have as individuals. By pooling their resources and collectively marketing their products, they are able to negotiate better prices and receive bulk discounts on inputs. This allows them to earn higher profits and have a stronger bargaining position in the market. While cooperatives may aim to promote equality among members, their primary purpose is economic.

Question 18

Mini-Case
For as long as she could remember, Jenna Raiter's passion was cars. As a teenager, she spent hours with her dad tinkering with the family car, learning to change the oil and making minor repairs. She got a job at a local garage while still in high school. A few years after graduating from high school and completing the auto mechanics degree at a local community college, Jenna decided she wanted to be her own boss. She quit her job, borrowed some money from her dad, and began her own repair shop, the AutoMotion Garage. Jenna's hard work gradually attracted a loyal clientele of satisfied customers. Her success has her thinking about opening garages in two other locations, but she lacks the financial resources needed for expansion. Furthermore, the success of her business is forcing Jenna to spend more time managing the business and less time doing the actual technical work she still enjoys. She wants to find business partners who can help her with management and provide additional financial resources. She has approached a couple of friends she met in high school:
Al Ternator and Lew Banfilter, to see if they would like to join the business.
-Although Lew Banfilter, now a young attorney is impressed with AutoMotion and believes it could be a place to invest money, he informed Jenna that his professional position at a law firm prevents him from taking an active role in the business. He is also concerned about accepting more risk since he has a young family. He mentioned a preference for unlimited liability. If Lew joined Jenna and Al, the three might consider forming a:

Accepted Answer

A limited partnership would allow Lew to have limited liability, as he desires, while also allowing Jenna and Al to take on more active roles in the business as general partners. This would also provide the additional financial resources Jenna is looking for from her potential partners. A general partnership would not offer limited liability for any of the partners, and a sole proprietorship would not involve any partners. A master limited partnership is a type of publicly traded partnership, which is not applicable in this scenario.

Question 19

Mini-Case
For as long as she could remember, Jenna Raiter's passion was cars. As a teenager, she spent hours with her dad tinkering with the family car, learning to change the oil and making minor repairs. She got a job at a local garage while still in high school. A few years after graduating from high school and completing the auto mechanics degree at a local community college, Jenna decided she wanted to be her own boss. She quit her job, borrowed some money from her dad, and began her own repair shop, the AutoMotion Garage. Jenna's hard work gradually attracted a loyal clientele of satisfied customers. Her success has her thinking about opening garages in two other locations, but she lacks the financial resources needed for expansion. Furthermore, the success of her business is forcing Jenna to spend more time managing the business and less time doing the actual technical work she still enjoys. She wants to find business partners who can help her with management and provide additional financial resources. She has approached a couple of friends she met in high school:
Al Ternator and Lew Banfilter, to see if they would like to join the business.
-Currently, AutoMotion Garage is operated as a(n):

Accepted Answer

Based on the description given, Jenna's AutoMotion Garage is currently operated as a sole proprietorship, as she owns and manages the business herself.

Question 20

Which of the following statements about operating a U.S.-based franchise in a foreign country is most accurate?

Accepted Answer

While A is not accurate, as strategies and procedures may need to be adapted to fit the foreign market, B is also inaccurate as many foreign countries do allow American-owned franchises. D is also not entirely accurate, as there are many factors that contribute to the success of U.S.-based franchises in foreign countries, not just the incomes of households. C is the most accurate as it acknowledges that operating costs may be high, but also recognizes the potential for success due to less intense competition and expanding customer bases in many foreign markets.

Quiz 5: How to Form a Business