Patents and copyrights are similar in that both

grant the holder a legal monopoly.

To "buy on margin" means to

buy stocks with borrowed funds.

A few months ago, ABC Pharmaceuticals was acquired by one of the nation's largest producers of breakfast cereals. The

new company was a conglomerate combination.

Preferred stock is like

common stock in that dividends increase as profits increase.

When the point of diminishing returns is reached as workers are added to the production line,

output per employee will decline.

Product differentiation enables businesses to

charge more than they would under perfect competition.

A corporation pays a dividend on its common stock

whenever its board of directors votes to do so.

Which of the following is an example of a disadvantage to a company getting too big?

A company spends more on managers than it earns in additional profits.

As a result of our nation's increasing productivity,

more goods are available per person than years ago.

The point beyond which adding variable inputs to fixed resources results in decreased productivity is called

the Law of Diminishing Returns.

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Economics Unit 2

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The Role of Business

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Questions 100

Answers

1
The difference between what a firm owns and what is owes is called its
assets.
liabilities.
net worth.
2
The higher the margin rate, the more difficult it is to buy stocks with borrowed funds.
False
True
3
If ABC Pharmaceuticals acquired the stores of two of its competitors, it was building a
vertical combination.
horizontal combination.
conglomerate combination.
4
Someone who buys a stock expecting its price to rise is called a
bull.
bear.
moose.
5
Patents and copyrights are similar in that both
provide government with important sources of revenue.
are issued by boards of directors of corporations.
grant the holder a legal monopoly.
6
An institution that buys an entire new issue of a corporation"s stocks and bonds for resale to the public is called a(n)
both of these
brokerage house.
investment bank.
7
Limited liability, unlimited life, and a charter are characteristics of
partnerships.
corporations.
sole proprietorships.
8
In pure competition, market price is determined exclusively by the forces of supply and demand.
False
True
9
Profits are what remains after the expenses of doing business are deducted from the amount of money taken in.
False
True
10
Which of the following is a disadvantage of most corporations?
limited life
double taxation
unlimited liability
11
A market in which a single firm can satisfy demand more efficiently than competing firms is called a(n)
monopsony.
natural monopoly.
oligopoly.
12
If ABC Pharmaceuticals purchased a box-manufacturing company to manufacture its own packaging materials, this would be a
conglomerate combination.
vertical combination.
horizontal combination.
13
Efforts to give buyers the impression that virtually identical products are different is called
monopolistic competition.
product differentiation.
perfect competition.
14
A summary of the financial activities of a company over time is called a(n)
cash flow statement.
balance sheet.
income statement.
15
To "buy on margin" means to
buy stocks with borrowed funds.
buy long.
buy over-the-counter.
16
A few months ago, ABC Pharmaceuticals was acquired by one of the nation's largest producers of breakfast cereals. The
new company was a conglomerate combination.
new company was a horizontal combination.
new company was a vertical combination.
17
A market with many sellers offering similar products that the buyers believe differ is called
monopolistic competition.
perfect competition.
an oligopoly.
18
An unincorporated business owned by one person is called a
partnership.
sole proprietorship.
limited liability company.
19
The percentage of an industry's total output produced by its four largest firms is called its
natural monopoly.
concentration ratio.
capacity.
20
Sole proprietorships and partnerships have limited lives.
True
False
21
Any item of value owned by a business is called a(n)
asset.
equity.
liability.
22
When you purchase a US savings bond, you are lending money to the US government.
False
True
23
A market that has only one supplier is called a(n)
monopoly.
oligopoly.
monopsony.
24
A government license to form a business is called a
bull.
charter.
proxy.
25
The holder of one share of stock in a corporation is
a debtor of the corporation.
an owner of the corporation.
a creditor of the corporation.
26
Preferred stock is like
a bond in that the holder of the stock is a creditor of the corporation.
common stock in that dividends increase as profits increase.
a bond in that the dividends must be paid regularly.
27
The use of borrowed funds to finance ownership of something is called
equity financing.
leverage.
buying long.
28
When the point of diminishing returns is reached as workers are added to the production line,
output per employee will decline.
total profits will decline.
total revenue will decline.
29
Costs that remain unchanged regardless of the number of units produced are called
fixed costs.
marginal costs.
variable costs.
30
Output per worker per unit of time is called
capacity.
equity financing.
labor productivity.
31
Costs that increase or decrease with the level of production are called
variable costs.
fixed costs.
economies of scale.
32
A patent is a license by a government to a firm for an exclusive market within its jurisdiction.
False
True
33
Which of the following is an example of a fixed cost?
electricity to power machinery
rent
raw materials
34
Which form of business organization is most numerous in the United States?
partnerships
sole proprietorships
corporations
35
Product differentiation enables businesses to
charge more than they would under perfect competition.
set prices as they would under conditions of monopoly.
improve the quality of their product.
36
A corporation pays a dividend on its common stock
when the interest becomes due.
whenever its board of directors votes to do so.
every year.
37
When increasing income resulting from a firm's expansion is less than its operational costs, it faces economies of scale
True
False
38
An oligopoly exists in conditions of imperfect competition.
False
True
39
A market that has only a few suppliers is called a(n)
monopsony.
oligopoly.
monopoly.
40
Which of the following is an example of a disadvantage to a company getting too big?
A company spends more on managers than it earns in additional profits.
A company becomes so large that it has to expand into new quarters.
A company goes out of business because of decreased demand for its product.
41
As a result of our nation's increasing productivity,
output per employee per hour has decreased.
more goods are available per person than years ago.
most goods are cheaper than they were years ago.
42
If the US public feels optimistic, it is likely to decrease its investments in stocks and bonds.
True
False
43
The sale of a corporation's stock as a means for the business to raise additional capital is called
equity financing.
selling short.
liquidation.
44
Prices are usually lowest for a product when it is produced by
a few very large companies.
many competing companies.
only one company.
45
An unincorporated firm that has many of the advantages of a corporation is a(n)
limited liability company.
interlocking directorate.
sole proprietorship.
46
Individually owned businesses make up a small portion of our nation's business enterprises.
False
True
47
An act that prohibits a business monopoly is called a(n)
patent.
concentration ratio.
antitrust law.
48
There is a fixed limit to the amount of profits that a partnership can make.
False
True
49
The point beyond which adding variable inputs to fixed resources results in decreased productivity is called
the Law of Diminishing Returns.
the Law of Demand.
the Law of Diminishing Marginal Utility.
50
A way of looking at profits when a firm adds one more unit to the production process is called
diminishing returns.
marginal analysis.
profit maximization.
51
By limiting production to an agreed-upon level, a cartel seeks to gain control over prices.
False
True
52
In setting their selling price, monopolists select the price that
will maximize their profit.
is the highest price that they can get for their product.
is determined by consumer demand.
53
If, after modernizing, a company had 5 less employees but went from producing 200 to 300 products per day,
its productivity increased by 50%.
its productivity declined.
its productivity doubled.
54
When a corporate security is registered with the Securities and Exchange Commission, this means that
the SEC has approved the security as a safe investment.
certain financial information has been filed with the SEC.
the SEC may act as a broker for the corporation.
55
A reduction in the cost of doing business that results from increases in the size of operations is called
equity financing.
diseconomies of scale.
economies of scale.
56
The income from the production of one more unit is called
marginal analysis.
capacity.
marginal revenue.
57
The holder of a corporate bond is
an owner of the corporation.
a creditor of the corporation.
a debtor of the corporation.
58
Owners of both partnerships and sole proprietorships have unlimited liability for debt.
False
True
59
Total wages are usually variable costs of businesses.
False
True
60
A bicycle company has fixed annual costs of $100,000 and variable costs of $10 Per bicycle. If output increases from
5,000 to 10,000 bikes per year, total cost will be reduced from $30 to $25.
5,000 to 10,000 bikes per year, total cost will be reduced from $30 to $20.
5,000 to 10,000 bikes per year, total cost will be reduced from $30 to $15.
61
The maximum amount that can be produced in the short run is called
capacity.
labor productivity.
equity.
62
Which of the following pieces of information is contained in a corporation's income statement?
value of the firm's factory
total liabilities
net income
63
Which of the following is the best reason for owning one's own business?
Entrepreneurs are their own boss.
It is the surest way to a profitable future.
Entrepreneurship gives one the ability to ignore the competition.
64
An unincorporated business owned by two or more persons is called a
partnership.
corporation.
sole proprietorship.
65
According to the principle of "double taxation,"
both of these
corporate dividends are subject to personal income taxes.
corporations pay income taxes on their earnings.
66
Rent and mortgage payments are usually fixed costs of businesses.
True
False
67
The federal government has attempted to regulate monopolies chiefly in order to
eliminate big businesses in the United States.
reduce the number of public utilities.
encourage competition.
68
The Girl Scouts of America is an example of a
consumer cooperative.
not-for-profit corporation.
sole proprietorship.
69
An owner of a corporation is called a
proxy.
charter.
shareholder.
70
Interlocking directorates are formed when one company
has representatives on the boards of directors of competing firms.
holds controlling shares of stock in other companies.
is absorbed by another.
71
The goods a business plans to sell and the materials used in their manufacture are called its
retained earnings.
inventory.
equity.
72
The breaking down of production into simpler tasks is called
division of labor.
specialization.
mass production.
73
Which of the following is true of a limited liability company (LLC)?
It is not subject to the corporate income tax.
It is the only form of business organization that offers limited liability.
It is the least expensive kind of business to organize.
74
As a rule, who has voting rights in a corporation?
the board of directors
stockholders
officers
75
Economies of scale is a negative effect of increased production.
True
False
76
Efforts to earn the greatest profit are called
capacity.
profit maximization.
marginal analysis.
77
Stockholders in a large corporation generally do not
receive a share of the profits.
manage the everyday affairs of the business.
elect the board of directors.
78
All of the following information is contained in a balance sheet except
assets.
total sales.
liabilities.
79
All US companies offer their stocks for sale on one of the country's stock exchanges.
False
True
80
Holders of common stock share in the profits of the company.
False
True
81
Someone who buys stock expecting its price to fall is called a
proxy.
bull.
bear.
82
Corporations obtain most of the funds that they need for expansion from
the sale of stocks.
their undistributed profits.
short-term borrowing.
83
An exclusive right given to market an invention is called a
deregulation.
copyright.
patent.
84
In industries with high overhead costs, increasing production tends to
lower return on investment.
lower overhead costs per unit.
lower total variable costs.
85
The best way to increase productivity in a plant is to
keep hiring more workers.
increase output.
employ all the factors of production more efficiently.
86
A business chartered under state or federal law and owned by its shareholders is called a
sole proprietorship.
corporation.
partnership.
87
In owning part of a corporation, one risks losing one's personal assets.
True
False
88
A type of business with fewer than 76 stockholders is called a
sole proprietorship.
limited liability company.
S-corporation.
89
A government grant of legal control over reproduction of a literary, musical, or artistic work is called
a patent.
a copyright.
eminent domain.
90
Profits of a business that are not distributed to its owners are called
retained earnings.
dividends.
both of these
91
Profits that are distributed by corporations to shareholders are called
dividends.
charters.
retained earnings.
92
The trait of a business that it will close upon the death of an owner is called
limited liability.
unlimited liability.
limited life.
93
Which of the following is the most attractive feature of the sole proprietorship?
its ability to expand across state borders
its limited liability
the ease with which it can be organized
94
The concentration ratio measures the degree of monopoly power in an industry.
True
False
95
Which of the following is least likely to result in increased productivity?
employee training programs
working overtime
efficient use of natural resources
96
Selling off or destroying existing operations and introducing new ones is known as
research and development.
creative destruction.
marginal analysis.
97
Output per worker begins to decline at the point of diminishing returns.
True
False
98
To remove a government regulation is to
deregulate.
monopolize.
copyright.
99
The status of being personally responsible for all debts of a company is called
unlimited liability.
limited liability.
limited life.
100
Monopolistic competition takes place when
there are only a few buyers for a product.
many firms sell a similar product.
only two or three firms manufacture a product.

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