Business Firms

1. Business Firms Costs of Production Intro to Market Structures Regular Ch. 7 and 8

2. 1. The short run is characterized by: • plenty of time for firms to either enter or leave the industry. • increasing, but not diminishing returns. • at least one fixed resource. • zero fixed costs.

3. 2. The long run is characterized by: • the relevance of the law of diminishing returns. • at least one fixed input. • insufficient time for firms to enter or leave the industry. • the ability of the firm to change its plant size.

4. 3. The basic difference between the short run and the long run is that: • A) all costs are fixed in the short run, but all costs are variable in the long run. • B) the law of diminishing returns applies in the long run, but not in the short run. • C) at least one resource is fixed in the short run, while all resources are variable in the long run. • D) economies of scale may be present in the short run, but not in the long run.

5. 4. In economics, a physical establishment such as a factory, farm, mine, store, or warehouse that performs one or more functions in fabricating and distributing goods is called a(n): • A) industry. • B) plant. • C) conglomerate. • D) shop.

6. 5. In economics, a group of firms that produce identical or similar products is called a(n): • A) industry. • B) plant. • C) conglomerate. • D) firm.

7. 6. In economics, a business establishment that owns one or more plants is called a(n): • A) industry. • B) shop. • C) conglomerate. • D) firm.

8. 7. A firm that produces a single product but owns plants in many different stages of the production process-for example, a steel producer that owns iron ore mines and rolling mills-best illustrates a: • A) vertically integrated firm. • B) multinational corporation. • C) virtual corporation. • D) conglomerate.

9. 8. A group of plants that is owned and operated by a single firm and that consists of oil fields, refineries, and gasoline stations best illustrates a: • A) trust. • B) holding company. • C) vertically integrated firm. • D) multinational corporation.

10. 9. A firm comprised of plants or units operating in different industries, say, beer and theme parks, best illustrates a: • A) vertically integrated firm. • B) multinational corporation. • C) multiplant firm. • D) conglomerate.

11. 10. The division of U.S. businesses into the categories of proprietorships, partnerships, and corporations is based on: • A) generally accepted accounting principles. • B) legal considerations. • C) the judgment of the American Economic Association. • D) an executive order of the President.

12. 11. Which form of business enterprise accounts for the largest proportion of total output? • A) corporations • B) proprietorships • C) partnerships • D) cooperatives

13. A) monopolists, competitors, and enterprises. • B) proprietorships, partnerships, and corporations. • C) vertical, horizontal, and conglomerate corporations. • D) conglomerates, multinationals, and partnerships

14. 13. The advantages of the corporate form of business include: • A) the ability to raise financial capital by selling stocks and bonds. • B) the fact that owners are subject to unlimited liability. • C) the elimination of the principal-agent problem. • D) single taxation of corporate earnings.

15. 14. A major disadvantage of corporations is that: • A) they cannot issue bonds. • B) dividends are taxed both as corporate income and as income to stockholders. • C) stockholders are subject to unlimited liability. • D) their charters last for only 20 years, at which time the corporation must reorganize.

16. 15. Limited liability means that: • A) creditors have no legal claim on the personal assets of a proprietor. • B) corporations cannot be sued. • C) creditors have no legal claim on the personal assets of a corporate stockholder. • D) corporations have a legal life independent of their owners and managers.

17. 16. Stocks are: • A) promises to repay a loan. • B) also known as bonds. • C) issued by sole proprietorships. • D) shares of ownership of a corporation.

18. 17. Fixed cost is: • A) the cost of producing one more unit of capital, say, machinery. • B) any cost which does not change when the firm changes its output. • C) average cost multiplied by the firm's output. • D) usually zero in the short run

19. 18. If you operated a small bakery, which of the following would be a variable cost in the short run? • A) baking ovens • B) interest on business loans • C) annual lease payment for use of the building • D) baking supplies (flour, salt, etc.)

20. 19. Marginal cost is the: • A) rate of change in total fixed cost that results from producing one more unit of output. • B) change in total cost that results from producing one more unit of output. • C) change in average variable cost that results from producing one more unit of output. • D) change in average total cost that results from producing one more unit of output.

21. 20. Marginal product is: • A) the increase in total output attributable to the employment of one more worker. • B) the increase in total revenue attributable to the employment of one more worker. • C) the increase in total cost attributable to the employment of one more worker. • D) total product divided by the number of workers employed.