Question 1

The three basic legal forms of business enterprise in the United States are

Accepted Answer

A)  monopolies, enterprises, and competitors. 
B)  vertical, horizontal, and conglomerate corporations. 
C)  national, global, and multinational corporations. 
D)  proprietorships, partnerships, and corporations.

Question 2

A shareholder in a corporation

Accepted Answer

A)  may not sell his or her share of ownership in the business without the business dissolving. 
B)  can earn interest, but not dividends, from the profits of the business. 
C)  is a part owner of the business. 
D)  is personally liable for the debts of the corporation.

Question 3

A bond is

Accepted Answer

A)  a legal claim to a part of a corporation's future profits that includes voting rights. 
B)  a legal claim to a part of a corporation's future profits that does not include voting rights. 
C)  a legal claim against a firm, providing a fixed annual coupon payment and a lump-sum payment at maturity. 
D)  a nonlegal promise to provide an annual payment to the holder when the corporation makes profits.

Question 4

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.

Question 5

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.

Question 6

The rate of interest that you pay on a home loan depends upon all of the following EXCEPT

Accepted Answer

A)  the supply of houses in the real estate market. 
B)  the length of the loan. 
C)  your credit rating. 
D)  handling charges or loan fees.

Question 7

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.

Question 8

Suppose that you borrow $10,000 for one year, and at the end of the year, you must repay $10,450. Also, during that year inflation was 2.5%. The real interest rate is

Accepted Answer

A)  12.0 percent. 
B)  7.0 percent. 
C)  4.5 percent. 
D)  2.0 percent.

Question 9

Suppose Jon Stewart of the "Daily Show" makes an annual income of $1,000,000. If he quit his television job and went into producing he could make $400,000 per year. Jon Stewart's opportunity cost as a producer is

Accepted Answer

A)  $1,400,000. 
B)  1,000,000. 
C)  $400,000. 
D)  $600,000.

Question 10

A portion of a worker's earnings is rent if

Accepted Answer

A)  the worker was the last person hired at the going wage rate. 
B)  the supply curve of labor is horizontal. 
C)  the worker would accept a small wage cut without quitting or working for someone else. 
D)  the worker has industry-specific skills.

Question 11

When a business is owned and operated by a single individual who receives all of the profits and is responsible for all debts, it is known as a

Accepted Answer

A)  partnership. 
B)  conglomerate. 
C)  corporation. 
D)  proprietorship.

Question 12

If the death of an owner causes the firm to dissolve, the firm must have been

Accepted Answer

A)  a partnership only. 
B)  a proprietorship only. 
C)  a corporation only. 
D)  either a proprietorship or a partnership.

Question 13

If a corporation fails, the first recipients of funds that may remain are

Accepted Answer

A)  preferred stockholders. 
B)  common stockholders. 
C)  bond holders. 
D)  no one.

Question 14

Juanita has just started a business and is using her personal car to deliver goods. The use of her car is an example of

Accepted Answer

A)  an explicit cost to the business. 
B)  an implicit cost to the business. 
C)  financial capital. 
D)  interest.

Question 15

Assuming a market rate of interest equal to 7 percent and anticipated inflation is 2 percent, what is the real (adjusted for inflation) present value of $200 to be received one year from today?

Accepted Answer

A)  $190 
B)  $214 
C)  $187 
D)  $210

Question 16

Economic rent is a concept that can be applied

Accepted Answer

A)  only to land, as that is the only resource that is in limited supply. 
B)  only to land and natural talent. 
C)  to any factor of production that is fixed in supply. 
D)  to any resource or factor of production that has a supply curve with a positive (upward) slope.

Question 17

Out-of-pocket expenses such as wages and raw materials are

Accepted Answer

A)  direct costs. 
B)  an owner-provided capital cost. 
C)  implicit costs. 
D)  explicit costs.

Question 18

In a firm, an entrepreneur is one who

Accepted Answer

A)  decides to hire or fire. 
B)  works for the owner by running the firm. 
C)  takes the risks associated with a business firm. 
D)  represents the firm in legal proceedings.

Question 19

Which of the following characteristics is NOT likely to increase the interest on a loan?

Accepted Answer

A)  A high-risk proposal 
B)  A non-creditworthy borrower 
C)  A short-term loan 
D)  A larger dollar loan

Question 20

The greatest advantage of a corporation is

Accepted Answer

A)  ease of setting up the business. 
B)  the double taxation of dividends. 
C)  separation of ownership and control of the business. 
D)  limited liability.

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