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Chapter 7 Review

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 decision-making body in a corporation. Board of directors. 5.

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Chapter 7 Review

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  1. Chapter 7 Review Economics

  2. 1 • The person or group that buys a franchise. • Franchisee

  3. 2 • A business owned by two or more co-owners. • Partnership.

  4. 3 • Putting forth less than the agreed-to effort. • shirking

  5. 4 • An important decision-making body in a corporation. • Board of directors.

  6. 5 • A condition in which an owner of a business firm can lose only the amount he or she has invested. • Limited liability.

  7. 6 • List the formula for calculating profit or loss. • TR – TC = profit

  8. 7 • Many firms make supervisors _________. This means they receive excess profits as income. • Residual claimants

  9. 8 • Issuing debt is another name for a _______. • Bond.

  10. 9 • A person who owns shares of stock in a corporation. • Shareholder or stockholder

  11. 10 • This type of business can sell stocks and bonds. • Corporation.

  12. 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.

  13. 12 • With this type of ownership structure, the profit is taxed only 1 time. • Sole proprietorship & partnership

  14. 13 • Income is taxed twice under this type of ownership structure. • Corporation.

  15. 14 • List the formula for marginal revenue. • Change in TR/change in Q = MR

  16. 15 • A cost that changes with the number of units of a good produced. • Variable cost.

  17. 16 • List a benefit of opening a franchise as opposed to a non-franchise business. • National advertising, established brand

  18. 17 • A legal entity that can conduct business in its own name in the same way that an individual does. • Corporation.

  19. 18 • A business that is owned by one individual who makes all business decisions. • Sole proprietorship

  20. 19 • The entity that offers a franchise. • Franchiser.

  21. 20 • List the formula for average total cost. • TC/Q=ATC

  22. 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

  23. 22 • List the formula for marginal cost. • Change in TC/change in Q = MC

  24. 23 • List the three types of ownership structures we discussed in chapter 7. • Sole proprietorship • Partnerships • Corporations

  25. 24 • List an advantage of the partnership compared to the sole proprietorship. • More people to help raise capital • Specialization of labor

  26. 25 • List additional costs associated with opening & running a franchise. • Franchise fee • Royalties • Meeting franchise standards

  27. 26 • What is Ralph Nader’s view on social responsibility in business? • Helping yourself helps others.

  28. 27 • List an example of a stock market. • AMEX, NASDAQ, & NYSE

  29. 28 • When a corporation first sells stock. The stock is being purchased from the corporation, not another investor. • Initial Public Offering (IPO)

  30. 29 • A cost or expense that is the same no matter how many units of a good are produced. • Fixed cost.

  31. 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

  32. Chapter 7 Review True/False Statements

  33. 31 • Business firms exist whenever people working together can produce more than the sum of what an individual working alone can produce. • True

  34. 32 • The person in the firm who shirks his or her duty is called the monitor. • False

  35. 33 • Under a sole proprietorship, all decision-making power resides with the board of directors. • False

  36. 34 • In a partnership, the benefits of specialization of labor can be realized. • True

  37. 35 • Corporations are subject to triple taxation. • False

  38. 36 • All businesses have costs, and all costs are the same. • False

  39. 37 • Expenses that are the same, no matter how many units of a good are produced, are called fixed costs. • True

  40. 38 • Average total cost is total cost divided by variable costs. • False

  41. 39 • Marginal cost is the additional cost of producing an additional unit of a good. • True

  42. 40 • Marginal revenue is the additional revenue from selling an additional unit of a good. • True

  43. 41 • Marginal revenue equals the change in total cost divided by change in total revenue. • False

  44. 42 • A firm will produce a good only if a profit will be made. • True

  45. 43 • The difference between total cost and total revenue is profit or loss. • True

  46. 44 • When one worker leads to an increase in total revenue, this is an example of the law of diminishing returns. • False

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