Question 1. The main advantage to a corporation is…

1. The main advantage to a corporation is…

A) ease of entry

B) limited liability for the owners

C) dividends all go to one person

D) owners share managerial duty

E) all of the above

2. The main advantage to a sole proprietorship is…

A) ease of entry

B) financial capital is easy to obtain

C) owners need little expertise in the day to day business

D) limited liability for the owner

E) all of the above

3. The main disadvantage to a sole proprietorship is…

A) profits must be shared

B) difficult and expensive to open

C) unlimited liability

D) single taxation

E) all of the above

4. The owners of a corporation are called

A) Corporate officers

B) The board of directors

C) Stockholders

D) Corporate executives

5. Profit is defined as

A) net revenue minus depreciation.

B) average revenue minus average total cost.

C) marginal revenue minus marginal cost.

D) total revenue minus total cost.

6. Which of the following is most likely to be a fixed cost?

A) materials

B) wages

C) rent

D) utilities

E) all of the above

7. A variable cost…

A) increases as production increases.

B) is a constant cost of production.

C) is always changing no matter the circumstance.

D) is a cost like manager’s salaries, rent, etc.

E) none of the above

8. Opportunity costs are comprised of

A) explicit costs.

B) implicit costs.

C) forgone income.

D) all of the above.

9. An example of an explicit cost of production would be

A) the cost of forgone labor earnings for an entrepreneur.

B) the cost of flour for a baker.

C) the lost opportunity to invest in other capital markets when the money is invested in one’s business.

D) none of the above.

10. If marginal cost is rising

A) marginal product must be rising.

B) marginal product must be falling.

C) average variable cost must be falling.

D) average fixed cost must be rising.

11. Economies of scale occur when

A) long-run average total costs rise as output increases.

B) average fixed costs are falling.

C) long-run average total costs fall as output increases.

D) average fixed costs are constant.

12. For a firm in a perfectly competitive market the price of the good is always equal to

A) marginal revenue.

B) average revenue.

C) equilibrium market price.

D) all of the above.

13. Which of the following is not a characteristic of a perfectly competitive market?

A) Firms are price takers.

B) There are many sellers in the market.

C) Goods offered for sale are largely the same.

D) Firms have difficulty entering the market.

14. When firms are said to be price takers, it implies that if a firm raises its price,

A) buyers will go elsewhere.

B) buyers will pay the higher price in the short run.

C) competitors will also raise their prices.

D) firms in the industry will exercise market power.

15. Characteristics of a Monopoly include:

(i) sole seller of its product.

(ii) product does not have close substitutes.

(iii) generates large economic profits.

(iv) they must sell at a certain price.

A) (i), (iii), and (iv)

B) both (i) and (iii)

C) both (i) and (ii)

D) all of the above

16. A fundamental source of monopoly market power arises from

A) barriers to entry.

B) perfectly elastic demand.

C) perfectly inelastic demand.

D) availability of “free” natural resources, such as water or air.

17. Monopolistically competitive firms are typically characterized by

A) many firms selling identical products.

B) a few firms selling similar or identical products.

C) a few firms selling highly different products.

D) many firms selling similar, but not identical products.

18. In markets characterized by oligopoly,

A) collusive agreements will always prevail.

B) collective profits are lower under cartel arrangements.

C) pursuit of self-interest by profit maximizing firms always maximizes collective profits in the market.

D) there is tension between cooperation and self-interest.

19. If identical products are sold by firms participating in a market, the market is

(i) perfectly competitive.

(ii) an oligopoly.

(iii) monopolistically competitive.

A) (i) or (ii)

B) (ii) or (iii)

C) (i) or (iii)

D) (i) only

20. The Sherman Antitrust Act

A) enhanced the ability to enforce cartel agreements.

B) restricted the ability of competitors to engage in cooperative agreements.

C) was passed to encourage judicial leniency in the review of cooperative agreements.

D) was concerned with self-interest dominated Nash equilibriums in prisoners’ dilemma games.

21. One way in which monopolistic competition differs from oligopoly is

A) there are no barriers to entry in oligopolies.

B) all oligopoly firms eventually earn zero economic profits.

C) strategic interactions between firms are rarely evident in oligopolies.

D) in oligopoly markets there are only a few sellers.

22. Because of product differentiation, a firm in a monopolistically competitive market

A) always has some market power.

B) is very similar to a perfectly competitive firm.

C) does not face the elastic portion of its demand curve.

D) is unaffected by the elasticity of demand.

23. A company should produce at a level

A) that maximizes profit.

B) where marginal revenue is greater then marginal cost

C) where marginal revenue is equal to marginal cost

D) both A and B

E) both A and C

24. In markets with perfect competition

A) information is closely guarded and difficult to obtain.

B) producers sell highly differentiated products.

C) businesses must compete by keeping their costs down.

D) new businesses find it very difficult to enter the market.

E) none of the above

25. An externality exists when

A) the government intercedes in the operation of private markets by forcing the market to adjust to the balance of supply and demand.

B) markets are not able to reach equilibrium.

C) a firm sells its product in a foreign market.

D) a person engages in an activity that influences the well-being of a bystander and yet neither pays nor receives payment for that effect.

26. Negative externalities occur when one person’s actions

A) cause another person to lose money in a stock market transaction.

B) cause his or her employer to lose business.

C) reveal his or her preference for foreign-produced goods.

D) adversely affect the well-being of a bystander (or bystanders) who is (are) not party to a market exchange.

27. Private goods are

A) excludable and nonrival.

B) nonexcludable and rival.

C) excludable and rival.

D) nonexcludable and nonrival.

28. Goods that are nonexcludable and nonrival are

A) public goods.

B) private goods.

C) natural monopolies.

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