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

1. The short run is characterized by: 1.plenty of time for firms to either enter or leave the industry. 2.increasing, but not diminishing returns. 3.at least one fixed resource. 4.zero fixed costs.

2. The long run is characterized by: 1.the relevance of the law of diminishing returns. 2.at least one fixed input. 3.insufficient time for firms to enter or leave the industry. 4.the ability of the firm to change its plant size.

3. The basic difference between the short run and the long run is that: 1.A) all costs are fixed in the short run, but all costs are variable in the long run. 2.B) the law of diminishing returns applies in the long run, but not in the short run. 3.C) at least one resource is fixed in the short run, while all resources are variable in the long run. 4.D) economies of scale may be present in the short run, but not in the long run.

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): 1.A) industry. 2.B) plant. 3.C) conglomerate. 4.D) shop.

5. In economics, a group of firms that produce identical or similar products is called a(n): 1.A) industry. 2.B) plant. 3.C) conglomerate. 4.D) firm.

6. In economics, a business establishment that owns one or more plants is called a(n): 1.A) industry. 2.B) shop. 3.C) conglomerate. 4.D) firm.

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: 1.A) vertically integrated firm. 2.B) multinational corporation. 3.C) virtual corporation. 4.D) conglomerate.

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: 1.A) trust. 2.B) holding company. 3.C) vertically integrated firm. 4.D) multinational corporation.

9. A firm comprised of plants or units operating in different industries, say, beer and theme parks, best illustrates a: 1.A) vertically integrated firm. 2.B) multinational corporation. 3.C) multiplant firm. 4.D) conglomerate.

10. The division of U.S. businesses into the categories of proprietorships, partnerships, and corporations is based on: 1.A) generally accepted accounting principles. 2.B) legal considerations. 3.C) the judgment of the American Economic Association. 4.D) an executive order of the President.

11. Which form of business enterprise accounts for the largest proportion of total output? 1.A) corporations 2.B) proprietorships 3.C) partnerships 4.D) cooperatives

1.A) monopolists, competitors, and enterprises. 2.B) proprietorships, partnerships, and corporations. 3.C) vertical, horizontal, and conglomerate corporations. 4.D) conglomerates, multinationals, and partnerships

13. The advantages of the corporate form of business include: 1.A) the ability to raise financial capital by selling stocks and bonds. 2.B) the fact that owners are subject to unlimited liability. 3.C) the elimination of the principal-agent problem. 4.D) single taxation of corporate earnings.

14. A major disadvantage of corporations is that: 1.A) they cannot issue bonds. 2.B) dividends are taxed both as corporate income and as income to stockholders. 3.C) stockholders are subject to unlimited liability. 4.D) their charters last for only 20 years, at which time the corporation must reorganize.

15. Limited liability means that: 1.A) creditors have no legal claim on the personal assets of a proprietor. 2.B) corporations cannot be sued. 3.C) creditors have no legal claim on the personal assets of a corporate stockholder. 4.D) corporations have a legal life independent of their owners and managers.

16. Stocks are: 1.A) promises to repay a loan. 2.B) also known as bonds. 3.C) issued by sole proprietorships. 4.D) shares of ownership of a corporation.

17. Fixed cost is: 1.A) the cost of producing one more unit of capital, say, machinery. 2.B) any cost which does not change when the firm changes its output. 3.C) average cost multiplied by the firm's output. 4.D) usually zero in the short run

18. If you operated a small bakery, which of the following would be a variable cost in the short run? 1.A) baking ovens 2.B) interest on business loans 3.C) annual lease payment for use of the building 4.D) baking supplies (flour, salt, etc.)

19. Marginal cost is the: 1.A) rate of change in total fixed cost that results from producing one more unit of output. 2.B) change in total cost that results from producing one more unit of output. 3.C) change in average variable cost that results from producing one more unit of output. 4.D) change in average total cost that results from producing one more unit of output.

20. Marginal product is: 1.A) the increase in total output attributable to the employment of one more worker. 2.B) the increase in total revenue attributable to the employment of one more worker. 3.C) the increase in total cost attributable to the employment of one more worker. 4.D) total product divided by the number of workers employed.