Chapter 7 Review
Economics
1
• The person or group
that buys a franchise.
• Franchisee
2
• A business owned by
two or more co-owners.
• Partnership.
3
• Putting forth less than
the agreed-to effort.
• shirking
4
• An important decisionmaking body in a
corporation.
• Board of directors.
5
• A condition in which an
owner of a business firm
can lose only the amount
he or she has invested.
• Limited liability.
6
• List the formula for
calculating profit or loss.
• TR – TC = profit
7
• Many firms make supervisors
_________. This means they
receive excess profits as
income.
• Residual claimants
8
• Issuing debt is another
name for a _______.
• Bond.
9
• A person who owns shares
of stock in a corporation.
• Shareholder or stockholder
10
• This type of business
can sell stocks and
bonds.
• Corporation.
11
• A law that states that if
additional units of one resource
are added to another resource
in fixed supply, eventually the
additional output will decrease.
• Law of diminishing marginal
returns.
12
• With this type of ownership
structure, the profit is taxed
only 1 time.
• Sole proprietorship &
partnership
13
• Income is taxed twice
under this type of
ownership structure.
• Corporation.
14
• List the formula for
marginal revenue.
• Change in TR/change in
Q = MR
15
• A cost that changes with the
number of units of a good
produced.
• Variable cost.
16
• List a benefit of opening a
franchise as opposed to a nonfranchise business.
• National advertising, established
brand
17
• A legal entity that can conduct
business in its own name in the
same way that an individual
does.
• Corporation.
18
• A business that is owned by
one individual who makes
all business decisions.
• Sole proprietorship
19
• The entity that offers a
franchise.
• Franchiser.
20
• List the formula for average
total cost.
• TC/Q=ATC
21
• A contract by which a firm lets a
person or group use its name
and sell its good in exchange for
certain payments &
requirements.
• Franchise
22
• List the formula for marginal
cost.
• Change in TC/change in Q =
MC
23
• List the three types of ownership
structures we discussed in chapter 7.
• Sole proprietorship
• Partnerships
• Corporations
24
• List an advantage of the partnership
compared to the sole proprietorship.
• More people to help raise capital
• Specialization of labor
25
• List additional costs associated with
opening & running a franchise.
• Franchise fee
• Royalties
• Meeting franchise standards
26
• What is Ralph Nader’s view on social
responsibility in business?
• Helping yourself helps others.
27
• List an example of a stock market.
• AMEX, NASDAQ, & NYSE
28
• When a corporation first sells stock. The
stock is being purchased from the
corporation, not another investor.
• Initial Public Offering (IPO)
29
• A cost or expense that is the same no
matter how many units of a good are
produced.
• Fixed cost.
30
• Joe hired a 10th worker at his small
business. He has not seen an increase in
production. This is an example of the
• Law of diminishing marginal returns
Chapter 7 Review
True/False Statements
31
• Business firms exist whenever people
working together can produce more than
the sum of what an individual working
alone can produce.
• True
32
• The person in the firm who shirks his or
her duty is called the monitor.
• False
33
• Under a sole proprietorship, all decisionmaking power resides with the board of
directors.
• False
34
• In a partnership, the benefits
of specialization of labor can
be realized.
• True
35
• Corporations are subject to triple taxation.
• False
36
• All businesses have costs, and all costs
are the same.
• False
37
• Expenses that are the same, no matter
how many units of a good are produced,
are called fixed costs.
• True
38
• Average total cost is total cost divided by
variable costs.
• False
39
• Marginal cost is the additional cost of
producing an additional unit of a good.
• True
40
• Marginal revenue is the additional revenue
from selling an additional unit of a good.
• True
41
• Marginal revenue equals the change in
total cost divided by change in total
revenue.
• False
42
• A firm will produce a good only if a profit
will be made.
• True
43
• The difference between total cost and total
revenue is profit or loss.
• True
44
• When one worker leads to an increase in
total revenue, this is an example of the law
of diminishing returns.
• False