Question 1

Suppose that you borrow $10,000 for two years, and at the end of the second year, you must repay $11,664. The interest rate is

Accepted Answer

A)  16.7 percent. 
B)  8.0 percent. 
C)  7.0 percent. 
D)  9.0 percent. 
A)  16.7 percent. 
B)  8.0 percent. 
C)  7.0 percent. 
D)  9.0 percent.

Question 2

Compared to a proprietorship, a disadvantage of a partnership is

Accepted Answer

A)  that profits are taxed twice. 
B)  that it is harder to keep the firm going after the death of an owner. 
C)  unlimited liability. 
D)  that potential liability to each partner is greater. 
A)  that profits are taxed twice. 
B)  that it is harder to keep the firm going after the death of an owner. 
C)  unlimited liability. 
D)  that potential liability to each partner is greater.

Question 3

When economic profits are negative, accounting profits

Accepted Answer

A)  must be positive. 
B)  will be negative. 
C)  will equal zero. 
D)  could be positive, negative or zero. 
A)  must be positive. 
B)  will be negative. 
C)  will equal zero. 
D)  could be positive, negative or zero.

Question 4

Of the owners of the following firms, which does NOT have unlimited liability for the business' debts?

Accepted Answer

A)  Roy Ray's Grocery Store, Roy Ray, proprietor 
B)  the partnership of Reese and Jones, Attorneys-at-Law 
C)  the Microsoft Corporation 
D)  Wren's Feed and Seed Store, a proprietorship 
A)  Roy Ray's Grocery Store, Roy Ray, proprietor 
B)  the partnership of Reese and Jones, Attorneys-at-Law 
C)  the Microsoft Corporation 
D)  Wren's Feed and Seed Store, a proprietorship

Question 5

If the present value of $110 to be received one year from now is $100, what will $100 be worth two years from now?

Accepted Answer

A)  $110 
B)  $121 
C)  $100 
D)  can't say since we don't know what the interest rate is 
A)  $110 
B)  $121 
C)  $100 
D)  can't say since we don't know what the interest rate is

Question 6

Owner-provided capital and owner-provided labor are examples of

Accepted Answer

A)  explicit costs. 
B)  implicit costs. 
C)  normal rate of return. 
D)  accounting costs. 
A)  explicit costs. 
B)  implicit costs. 
C)  normal rate of return. 
D)  accounting costs.

Question 7

The present value of $120 to be received one year from now

Accepted Answer

A)  is $120. 
B)  is $100. 
C)  is $121. 
D)  depends on the rate of discount. 
A)  is $120. 
B)  is $100. 
C)  is $121. 
D)  depends on the rate of discount.

Question 8

Stock markets for securities are important because

Accepted Answer

A)  they are where corporations raise financial capital. 
B)  they are where proprietorships and partnerships raise financial capital. 
C)  they permit individuals to transfer their savings directly into investment spending. 
D)  they make the stocks and bonds more valuable. 
A)  they are where corporations raise financial capital. 
B)  they are where proprietorships and partnerships raise financial capital. 
C)  they permit individuals to transfer their savings directly into investment spending. 
D)  they make the stocks and bonds more valuable.

Question 9

The goal of the firm is

Accepted Answer

A)  low labor turnover. 
B)  to maximize sales. 
C)  to minimize costs. 
D)  profit maximization. 
A)  low labor turnover. 
B)  to maximize sales. 
C)  to minimize costs. 
D)  profit maximization.

Question 10

Economic profits are equal to

Accepted Answer

A)  total revenues minus total fixed costs. 
B)  total revenues, after tax, minus cost of goods sold. 
C)  total revenues minus the implicit and explicit costs of all inputs used. 
D)  total revenues minus the opportunity cost of labor. 
A)  total revenues minus total fixed costs. 
B)  total revenues, after tax, minus cost of goods sold. 
C)  total revenues minus the implicit and explicit costs of all inputs used. 
D)  total revenues minus the opportunity cost of labor.

Question 11

A star basketball player signs a contract that newspaper reports indicate is worth $10 million. The player receives $2 million upon signing, and $2 million every year for four years. The contract is worth

Accepted Answer

A)  less than $10 million since the present value of $2 million received one or more years from now is less than $2 million. 
B)  more than $10 million since the present value of $2 million received one or more years from now is more than $2 million. 
C)  $10 million as reported in the press. 
D)  some amount around $10 million. To determine whether it is more or less than $10 million we need to know whether the interest the player can earn is more or less than the market rate of interest. 
A)  less than $10 million since the present value of $2 million received one or more years from now is less than $2 million. 
B)  more than $10 million since the present value of $2 million received one or more years from now is more than $2 million. 
C)  $10 million as reported in the press. 
D)  some amount around $10 million. To determine whether it is more or less than $10 million we need to know whether the interest the player can earn is more or less than the market rate of interest.

Question 12

Single-owner proprietorships often unintentionally exaggerate their profits because they

Accepted Answer

A)  forget their explicit losses. 
B)  look at after-tax instead of pre-tax costs. 
C)  pay their bills late and therefore incur large interest charges. 
D)  neglect to consider the opportunity cost of the owner's labor. 
A)  forget their explicit losses. 
B)  look at after-tax instead of pre-tax costs. 
C)  pay their bills late and therefore incur large interest charges. 
D)  neglect to consider the opportunity cost of the owner's labor.

Question 13

Why are there so many more proprietorships than corporations, yet corporations account for so much more of the sales of business firms in the country?

Accepted Answer

Proprietorships are easy to form and can

Question 14

In economics, interest refers to all of the following EXCEPT

Accepted Answer

A)  the payment for current rather than future command over resources. 
B)  the cost of obtaining credit. 
C)  the return paid to owners of financial institutions. 
D)  the return paid to the owners of capital. 
A)  the payment for current rather than future command over resources. 
B)  the cost of obtaining credit. 
C)  the return paid to owners of financial institutions. 
D)  the return paid to the owners of capital.

Question 15

The concept of economic rent is associated with the British economist David Ricardo (1772-1823). Ricardo analyzed economic rent for land. Which of the following is FALSE with respect to determining land rent?

Accepted Answer

A)  The supply curve for land is vertical (perfectly inelastic). 
B)  Rent is payment for a resource above its opportunity cost. 
C)  Payment for a resource below its opportunity cost is rent. 
D)  Ricardo assumed the quantity of land in a country is fixed. 
A)  The supply curve for land is vertical (perfectly inelastic). 
B)  Rent is payment for a resource above its opportunity cost. 
C)  Payment for a resource below its opportunity cost is rent. 
D)  Ricardo assumed the quantity of land in a country is fixed.

Question 16

A firm that is NOT maximizing profits

Accepted Answer

A)  would never be able to operate in the United States. 
B)  must not be owned by stockholders. 
C)  may find it difficult to raise financial capital from external capital markets. 
D)  is likely to face legal prosecution from the Department of Commerce. 
A)  would never be able to operate in the United States. 
B)  must not be owned by stockholders. 
C)  may find it difficult to raise financial capital from external capital markets. 
D)  is likely to face legal prosecution from the Department of Commerce.

Question 17

When a corporation uses profits to pay for the purchase of new capital equipment, this is known as

Accepted Answer

A)  reinvestment. 
B)  a coupon payment. 
C)  dividend. 
D)  collusion. 
A)  reinvestment. 
B)  a coupon payment. 
C)  dividend. 
D)  collusion.

Question 18

When accounting profits are positive, economic profits

Accepted Answer

A)  must be positive. 
B)  will be negative. 
C)  will equal zero. 
D)  could be positive, negative or zero. 
A)  must be positive. 
B)  will be negative. 
C)  will equal zero. 
D)  could be positive, negative or zero.

Question 19

The higher are a firm's risk-corrected returns

Accepted Answer

A)  the lower are its labor costs. 
B)  the higher are its opportunity costs. 
C)  the more advantage it has in obtaining investor financing. 
D)  the more difficulty it will have financing its expansion plans. 
A)  the lower are its labor costs. 
B)  the higher are its opportunity costs. 
C)  the more advantage it has in obtaining investor financing. 
D)  the more difficulty it will have financing its expansion plans.

Question 20

When interest rates allocate capital

Accepted Answer

A)  many worthwhile projects fail to get funded and society is worse off. 
B)  investment projects of firms tend to get funded while valuable social investments funded by the government tend not to get funded. 
C)  only investment projects are funded for which the expected benefits of the projects equal or exceed the opportunity cost of the projects. 
D)  there is an under investment in capital and overspending on durable consumer goods. 
A)  many worthwhile projects fail to get funded and society is worse off. 
B)  investment projects of firms tend to get funded while valuable social investments funded by the government tend not to get funded. 
C)  only investment projects are funded for which the expected benefits of the projects equal or exceed the opportunity cost of the projects. 
D)  there is an under investment in capital and overspending on durable consumer goods.

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

Suppose that you borrow $10,000 for two years, and at the end of the second year, you must repay $11,664. The interest rate is

Compared to a proprietorship, a disadvantage of a partnership is

When economic profits are negative, accounting profits

Of the owners of the following firms, which does NOT have unlimited liability for the business' debts?

If the present value of $110 to be received one year from now is $100, what will $100 be worth two years from now?

Owner-provided capital and owner-provided labor are examples of

The present value of $120 to be received one year from now

Stock markets for securities are important because

The goal of the firm is

Economic profits are equal to

A star basketball player signs a contract that newspaper reports indicate is worth $10 million. The player receives $2 million upon signing, and $2 million every year for four years. The contract is worth

Single-owner proprietorships often unintentionally exaggerate their profits because they

Why are there so many more proprietorships than corporations, yet corporations account for so much more of the sales of business firms in the country?

In economics, interest refers to all of the following EXCEPT

The concept of economic rent is associated with the British economist David Ricardo (1772-1823). Ricardo analyzed economic rent for land. Which of the following is FALSE with respect to determining land rent?

A firm that is NOT maximizing profits

When a corporation uses profits to pay for the purchase of new capital equipment, this is known as

When accounting profits are positive, economic profits

The higher are a firm's risk-corrected returns

When interest rates allocate capital

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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