Question 1

An entrepreneur is

Accepted Answer

A)  the rate of return on capital. 
B)  a legal form of business. 
C)  one who takes risks and makes innovations in organizing a firm. 
D)  the rate of discount. 
A)  the rate of return on capital. 
B)  a legal form of business. 
C)  one who takes risks and makes innovations in organizing a firm. 
D)  the rate of discount.

Question 2

All of the following are advantages of organizing a business as a sole proprietorship EXCEPT

Accepted Answer

A)  ease of formation. 
B)  limited liability. 
C)  ease of decision-making. 
D)  single taxation. 
A)  ease of formation. 
B)  limited liability. 
C)  ease of decision-making. 
D)  single taxation.

Question 3

When an entrepreneur invests his own financial capital in order to start a business

Accepted Answer

A)  the opportunity cost of capital should be included in the economic cost of doing business. 
B)  the investment is treated as a fixed cost, so it should not be considered as a cost of doing business. 
C)  the firm's economic profits will exceed its accounting profits. 
D)  the accounting costs increase because the funds would otherwise have to be borrowed. 
A)  the opportunity cost of capital should be included in the economic cost of doing business. 
B)  the investment is treated as a fixed cost, so it should not be considered as a cost of doing business. 
C)  the firm's economic profits will exceed its accounting profits. 
D)  the accounting costs increase because the funds would otherwise have to be borrowed.

Question 4

Given a discount rate of 10 percent, the present value of receiving $100,000 two years in the future is

Accepted Answer

A)  $12,000. 
B)  $80,000. 
C)  $82,645. 
D)  $121,000. 
A)  $12,000. 
B)  $80,000. 
C)  $82,645. 
D)  $121,000.

Question 5

Which of the following statements about business organizations is TRUE?

Accepted Answer

A)  Partnerships are more common than proprietorships and are responsible for a larger percentage of business receipts. 
B)  Proprietorships are more common than either partnerships or corporations but are responsible for the smallest share of total business receipts. 
C)  Corporations are larger in number than either proprietorships or partnerships and also receive a larger percentage of total business receipts. 
D)  Partnerships are larger than both proprietorships and corporations but are less numerous than corporations. 
A)  Partnerships are more common than proprietorships and are responsible for a larger percentage of business receipts. 
B)  Proprietorships are more common than either partnerships or corporations but are responsible for the smallest share of total business receipts. 
C)  Corporations are larger in number than either proprietorships or partnerships and also receive a larger percentage of total business receipts. 
D)  Partnerships are larger than both proprietorships and corporations but are less numerous than corporations.

Question 6

The most likely source of investment funds for a proprietorship is

Accepted Answer

A)  sales of stocks. 
B)  sales of bonds. 
C)  loans from banks. 
D)  the personal funds of the owner. 
A)  sales of stocks. 
B)  sales of bonds. 
C)  loans from banks. 
D)  the personal funds of the owner.

Question 7

A company raises funds by selling 5 million shares of common stock to 5,000 shareholders and $1 million bonds to 1,000 bondholders. The number of individuals who vote for the company's board of directors is

Accepted Answer

A)  6,000. 
B)  5,000. 
C)  1,000. 
D)  5,000,000. 
A)  6,000. 
B)  5,000. 
C)  1,000. 
D)  5,000,000.

Question 8

A key assumption of David Ricardo's economic rent concept was that

Accepted Answer

A)  all land is equally productive. 
B)  land is too differentiated to be able to measure. 
C)  only land in large cities matters. 
D)  land is always cheap and needs development. 
A)  all land is equally productive. 
B)  land is too differentiated to be able to measure. 
C)  only land in large cities matters. 
D)  land is always cheap and needs development.

Question 9

A proprietorship is

Accepted Answer

A)  two or more individuals in business together. 
B)  a corporation that is taxed like an individual. 
C)  a business owned by one individual who makes all of the decisions. 
D)  a government-owned franchise. 
A)  two or more individuals in business together. 
B)  a corporation that is taxed like an individual. 
C)  a business owned by one individual who makes all of the decisions. 
D)  a government-owned franchise.

Question 10

Corporations have a separation and control problem because

Accepted Answer

A)  owners and managers frequently have different incentives. 
B)  most of the profits are reinvested. 
C)  the shareholders control the firm. 
D)  taxes are paid only by the board of directors. 
A)  owners and managers frequently have different incentives. 
B)  most of the profits are reinvested. 
C)  the shareholders control the firm. 
D)  taxes are paid only by the board of directors.

Question 11

When Peter sells his Google common stock at the same time that Brian purchases the same amount of Google stock from another party, Google receives

Accepted Answer

A)  the dollar value of the transaction. 
B)  only the par value of the common stock. 
C)  nothing. 
D)  the dollar amount of the transaction, less brokerage fees. 
A)  the dollar value of the transaction. 
B)  only the par value of the common stock. 
C)  nothing. 
D)  the dollar amount of the transaction, less brokerage fees.

Question 12

A famous opera star made $2 million per year. He said he would rather sell insurance if he couldn't make more than $200,000 per year. If he is telling the truth, how much is he being paid in economic rent?

Accepted Answer

A)  $2.0 million 
B)  $200,000 
C)  $1.8 million 
D)  $2.2 million 
A)  $2.0 million 
B)  $200,000 
C)  $1.8 million 
D)  $2.2 million

Question 13

In economics we assume that the goal of a firm is to

Accepted Answer

A)  minimize costs. 
B)  maximize revenue. 
C)  maximize economic profits. 
D)  maximize total sales. 
A)  minimize costs. 
B)  maximize revenue. 
C)  maximize economic profits. 
D)  maximize total sales.

Question 14

Discuss the advantages and disadvantages of proprietorships.

Accepted Answer

Proprietorships are easy to form and to

Question 15

What is the present value of $100 one-year from now at an interest rate of 6%?

Accepted Answer

A)  $94 
B)  $107 
C)  $97.09 
D)  $3 
A)  $94 
B)  $107 
C)  $97.09 
D)  $3

Question 16

A person who is willing to bear more risk will buy

Accepted Answer

A)  common stock. 
B)  preferred stock. 
C)  bonds. 
D)  government bonds. 
A)  common stock. 
B)  preferred stock. 
C)  bonds. 
D)  government bonds.

Question 17

Suppose that you decide to purchase either stocks or bonds of a particular corporation and you also prefer to receive some returns from the securities every year. Which should you buy - stocks or bonds? Why?

Accepted Answer

You should buy bonds because you would r

Question 18

By definition, a firm is

Accepted Answer

A)  a business organization that makes profits. 
B)  a business organization that utilizes resources to produce goods or services with the goal of making a profit. 
C)  a business organization that consists of more than one person. 
D)  an organization, whether private or public, that may or may not make a profit. 
A)  a business organization that makes profits. 
B)  a business organization that utilizes resources to produce goods or services with the goal of making a profit. 
C)  a business organization that consists of more than one person. 
D)  an organization, whether private or public, that may or may not make a profit.

Question 19

Limited liability exists when

Accepted Answer

A)  the liability of owners is limited to the value of the shares in the firm they own. 
B)  the liability of owners is limited to the share of the debt they personally took on. 
C)  partners specialize and each partner is responsible for the debts of his or her specialized area. 
D)  bondholders must receive their payments before stockholders can earn any money. 
A)  the liability of owners is limited to the value of the shares in the firm they own. 
B)  the liability of owners is limited to the share of the debt they personally took on. 
C)  partners specialize and each partner is responsible for the debts of his or her specialized area. 
D)  bondholders must receive their payments before stockholders can earn any money.

Question 20

A stock that has a price of $20 per share, earnings per share of $2.00, and a dividend of $1.50 will have

Accepted Answer

A)  a PE ratio of 20/1.50. 
B)  a yield of 7.5 percent. 
C)  a yield of 12 percent. 
D)  a PE ratio of 1.333. 
A)  a PE ratio of 20/1.50. 
B)  a yield of 7.5 percent. 
C)  a yield of 12 percent. 
D)  a PE ratio of 1.333.

Exam 21: Rents, Profits, and the Financial Environment of Business

An entrepreneur is

All of the following are advantages of organizing a business as a sole proprietorship EXCEPT

When an entrepreneur invests his own financial capital in order to start a business

Given a discount rate of 10 percent, the present value of receiving $100,000 two years in the future is

Which of the following statements about business organizations is TRUE?

The most likely source of investment funds for a proprietorship is

A company raises funds by selling 5 million shares of common stock to 5,000 shareholders and $1 million bonds to 1,000 bondholders. The number of individuals who vote for the company's board of directors is

A key assumption of David Ricardo's economic rent concept was that

A proprietorship is

Corporations have a separation and control problem because

When Peter sells his Google common stock at the same time that Brian purchases the same amount of Google stock from another party, Google receives

A famous opera star made $2 million per year. He said he would rather sell insurance if he couldn't make more than $200,000 per year. If he is telling the truth, how much is he being paid in economic rent?

In economics we assume that the goal of a firm is to

Discuss the advantages and disadvantages of proprietorships.

What is the present value of $100 one-year from now at an interest rate of 6%?

A person who is willing to bear more risk will buy

Suppose that you decide to purchase either stocks or bonds of a particular corporation and you also prefer to receive some returns from the securities every year. Which should you buy - stocks or bonds? Why?

By definition, a firm is

Limited liability exists when

A stock that has a price of $20 per share, earnings per share of $2.00, and a dividend of $1.50 will have

The Nature of Economics

Scarcity and the World of Trade-Offs

Demand and Supply

Extensions of Demand and Supply Analysis

Public Spending and Public Choice

Funding the Public Sector

The Macroeconomy: Unemployment, Inflation, and Deflation

Measuring the Economys Performance

Global Economic Growth and Development

Real GDP and the Price Level in the Long Run

Classical and Keynesian Macro Analyses

Consumption, Real GDP, and the Multiplier

Fiscal Policy

Deficit Spending and the Public Debt

Money, Banking, and Central Banking

Domestic and International Dimensions of Monetary Policy

Stabilization in an Integrated World Economy

Policies and Prospects for Global Economic Growth

Demand and Supply Elasticity

Consumer Choice

The Firm: Cost and Output Determination

Perfect Competition

Monopoly

Monopolistic Competition

Oligopoly and Strategic Behavior

Regulation and Antitrust Policy in a Globalized Economy

The Labor Market: Demand, Supply and Outsourcing

Unions and Labor Market Monopoly Power

Income, Poverty, and Health Care

Environmental Economics

Comparative Advantage and the Open Economy

Exchange Rates and the Balance of Payments

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