Question 1

If profits are reinvested in the corporation, then

Accepted Answer

A)  payments made to bondholders will be less. 
B)  there are fewer funds available to distribute to stockholders. 
C)  the company will sell more bonds in order to pay dividends to stockholders. 
D)  the high profits indicate that common stockholders will get larger dividends than normal. 
A)  payments made to bondholders will be less. 
B)  there are fewer funds available to distribute to stockholders. 
C)  the company will sell more bonds in order to pay dividends to stockholders. 
D)  the high profits indicate that common stockholders will get larger dividends than normal.

Question 2

One advantage of a proprietorship is that

Accepted Answer

A)  it is relatively easy to raise financial capital for a proprietorship. 
B)  a proprietorship is relatively easy to form and to dissolve. 
C)  there are limits to the possible liabilities of the owner. 
D)  depreciation rates on capital are higher. 
A)  it is relatively easy to raise financial capital for a proprietorship. 
B)  a proprietorship is relatively easy to form and to dissolve. 
C)  there are limits to the possible liabilities of the owner. 
D)  depreciation rates on capital are higher.

Question 3

The real interest rate is the

Accepted Answer

A)  nominal interest rate plus the anticipated interest rate. 
B)  nominal interest rate minus the anticipated interest rate. 
C)  nominal interest rate plus the anticipated inflation rate. 
D)  nominal interest rate minus the anticipated inflation rate. 
A)  nominal interest rate plus the anticipated interest rate. 
B)  nominal interest rate minus the anticipated interest rate. 
C)  nominal interest rate plus the anticipated inflation rate. 
D)  nominal interest rate minus the anticipated inflation rate.

Question 4

Which of the following modern methods of financing a corporation was not available to corporations four hundred years ago?

Accepted Answer

A)  selling stock 
B)  selling bonds 
C)  reinvestment. 
D)  All of these methods were used then as well as now. 
A)  selling stock 
B)  selling bonds 
C)  reinvestment. 
D)  All of these methods were used then as well as now.

Question 5

The term "economic rent" refers to payments

Accepted Answer

A)  to owners of real estate. 
B)  for the use of any resource above its opportunity cost. 
C)  equal to the opportunity cost of the use of land. 
D)  for the use of housing in company owned properties. 
A)  to owners of real estate. 
B)  for the use of any resource above its opportunity cost. 
C)  equal to the opportunity cost of the use of land. 
D)  for the use of housing in company owned properties.

Question 6

Economic rent is any payment

Accepted Answer

A)  received by the owner of a resource in perfectly elastic supply. 
B)  received by the owner of a resource with a supply curve that is not horizontal. 
C)  in excess of the resource's opportunity cost. 
D)  below that of a normal profit or return. 
A)  received by the owner of a resource in perfectly elastic supply. 
B)  received by the owner of a resource with a supply curve that is not horizontal. 
C)  in excess of the resource's opportunity cost. 
D)  below that of a normal profit or return.

Question 7

A payment for the use of an input that exceeds the opportunity cost of the input is known as

Accepted Answer

A)  real interest. 
B)  economic profit. 
C)  economic rent. 
D)  economic cost. 
A)  real interest. 
B)  economic profit. 
C)  economic rent. 
D)  economic cost.

Question 8

The Hawaiian island of Lana'i is privately owned by Castle & Cooke and for generations most of its land was used to grow pineapples. Now, many of the pineapple fields have been replaced by tourist accommodations, including a pair of world-class hotels and a top rated golf course. What would an economist say about this change in land-use patterns?

Accepted Answer

A)  While growing pineapples used the island's land more efficiently, tourism provides utility to the largest number of people. 
B)  Economic rent has allocated the island's resources to their highest valued use: tourism. 
C)  Agriculture is still the land's highest-valued and most efficient use, but tourism earns more profits for Castle & Cooke. 
D)  To find the land's economic rent, add the price per acre that land on Lana'i would be worth if used to grow pineapples to the value per acre when used for a golf course. 
A)  While growing pineapples used the island's land more efficiently, tourism provides utility to the largest number of people. 
B)  Economic rent has allocated the island's resources to their highest valued use: tourism. 
C)  Agriculture is still the land's highest-valued and most efficient use, but tourism earns more profits for Castle & Cooke. 
D)  To find the land's economic rent, add the price per acre that land on Lana'i would be worth if used to grow pineapples to the value per acre when used for a golf course.

Question 9

Suppose your coffee shop earns $25,000 in total revenues per month with explicit costs of $15,000 and opportunity costs of $10,000. Your economic profit is

Accepted Answer

A)  $16,000. 
B)  $12,000. 
C)  $5,000. 
D)  zero. 
A)  $16,000. 
B)  $12,000. 
C)  $5,000. 
D)  zero.

Question 10

What is the difference between accounting profits and economic profits? Which of the two concepts is more appropriate for explaining decisions made by entrepreneurs? Explain.

Accepted Answer

The difference between accounting profit

Question 11

The goal of the firm, according to economists, is to

Accepted Answer

A)  stay in business for as long as possible. 
B)  sell as many units of the good it produces as possible. 
C)  grow as large as possible. 
D)  make as much economic profit as is possible. 
A)  stay in business for as long as possible. 
B)  sell as many units of the good it produces as possible. 
C)  grow as large as possible. 
D)  make as much economic profit as is possible.

Question 12

Which of the following is NOT an advantage of a proprietorship?

Accepted Answer

A)  They are easy to form and dissolve. 
B)  Decision-making resides with one person-the owner. 
C)  Liability of the owner is unlimited. 
D)  Profits are only taxed once. 
A)  They are easy to form and dissolve. 
B)  Decision-making resides with one person-the owner. 
C)  Liability of the owner is unlimited. 
D)  Profits are only taxed once.

Question 13

Businesses demand funds because

Accepted Answer

A)  they prefer earlier consumption to later consumption. 
B)  they have deficits to cover. 
C)  they prefer to purchase capital goods in the current year. 
D)  they make investments that they believe will increase productivity and profitability. 
A)  they prefer earlier consumption to later consumption. 
B)  they have deficits to cover. 
C)  they prefer to purchase capital goods in the current year. 
D)  they make investments that they believe will increase productivity and profitability.

Question 14

Pure economic rent involves situations where

Accepted Answer

A)  the supply curve is perfectly inelastic. 
B)  the supply curve is perfectly elastic. 
C)  the uses to which a resource can be used can be varied but the quality of the resource cannot be varied. 
D)  the quality of a resource can be varied but the price cannot be varied. 
A)  the supply curve is perfectly inelastic. 
B)  the supply curve is perfectly elastic. 
C)  the uses to which a resource can be used can be varied but the quality of the resource cannot be varied. 
D)  the quality of a resource can be varied but the price cannot be varied.

Question 15

The real rate of interest is

Accepted Answer

A)  equal to the nominal rate of interest less the anticipated rate of inflation. 
B)  equal to the nominal rate of interest plus the anticipated rate of inflation. 
C)  found by taking the nominal rate of interest and dividing it by the actual rate of inflation. 
D)  found by taking the nominal rate of interest and adding the actual rate of inflation. 
A)  equal to the nominal rate of interest less the anticipated rate of inflation. 
B)  equal to the nominal rate of interest plus the anticipated rate of inflation. 
C)  found by taking the nominal rate of interest and dividing it by the actual rate of inflation. 
D)  found by taking the nominal rate of interest and adding the actual rate of inflation.

Question 16

Accounting profit can be calculated as

Accepted Answer

A)  total revenue - explicit costs. 
B)  total revenue - implicit costs. 
C)  total revenue - explicit costs - implicit costs. 
D)  total revenue - fixed costs. 
A)  total revenue - explicit costs. 
B)  total revenue - implicit costs. 
C)  total revenue - explicit costs - implicit costs. 
D)  total revenue - fixed costs.

Question 17

Which of the following statements about stock market brokers and dealers is TRUE?

Accepted Answer

A)  Brokers earn commissions from trading stocks but dealers try to profit from trading stocks. 
B)  Brokers try to profit from trading stocks but dealers earn commissions from trading stocks. 
C)  Both brokers and dealers earn commissions from trading stocks. 
D)  Both brokers and dealers try to profit from trading stocks. 
A)  Brokers earn commissions from trading stocks but dealers try to profit from trading stocks. 
B)  Brokers try to profit from trading stocks but dealers earn commissions from trading stocks. 
C)  Both brokers and dealers earn commissions from trading stocks. 
D)  Both brokers and dealers try to profit from trading stocks.

Question 18

Corrina was working as a waitress in an Italian restaurant making an annual income of $25,000 per year when she decided to start up her own catering business. Corrina used $10,000 of her savings that was earning 5 percent annual interest to establish her business. After the first year she made an accounting profit of $20,000. Her economic profit was

Accepted Answer

A)  -$5,550. 
B)  -$5,000. 
C)  $20,000. 
D)  $25,000. 
A)  -$5,550. 
B)  -$5,000. 
C)  $20,000. 
D)  $25,000.

Question 19

Proprietorships are

Accepted Answer

A)  the most common form of business organization in the country. 
B)  responsible for most of the profits in the country. 
C)  generally large relative to other business organizations. 
D)  easy to form but difficult to dissolve. 
A)  the most common form of business organization in the country. 
B)  responsible for most of the profits in the country. 
C)  generally large relative to other business organizations. 
D)  easy to form but difficult to dissolve.

Question 20

Joanne left her last job, in which she was earning $60,000, in order to form her own consulting business. Her revenues for the first year of consulting were $210,000. During that year, she hired two assistants for $25,000 each and spent $25,000 on office equipment. In addition, she incurred $75,000 in miscellaneous expenses. Her economic profit that first year was

Accepted Answer

A)  $0. 
B)  $50,000. 
C)  $200,000. 
D)  $75,000. 
A)  $0. 
B)  $50,000. 
C)  $200,000. 
D)  $75,000.

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

If profits are reinvested in the corporation, then

One advantage of a proprietorship is that

The real interest rate is the

Which of the following modern methods of financing a corporation was not available to corporations four hundred years ago?

The term "economic rent" refers to payments

Economic rent is any payment

A payment for the use of an input that exceeds the opportunity cost of the input is known as

Suppose your coffee shop earns $25,000 in total revenues per month with explicit costs of $15,000 and opportunity costs of $10,000. Your economic profit is

What is the difference between accounting profits and economic profits? Which of the two concepts is more appropriate for explaining decisions made by entrepreneurs? Explain.

The goal of the firm, according to economists, is to

Which of the following is NOT an advantage of a proprietorship?

Businesses demand funds because

Pure economic rent involves situations where

The real rate of interest is

Accounting profit can be calculated as

Which of the following statements about stock market brokers and dealers is TRUE?

Proprietorships are

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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