1. Chapter 7 Review
Economics

2. The person or group that buys a franchise. Franchisee1
The person or group that buys a franchise.
Franchisee

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

4. Putting forth less than the agreed-to effort. shirking3
Putting forth less than the agreed-to effort.
shirking

5. An important decision-making body in a corporation.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. List the formula for calculating profit or loss. TR – TC = profit6
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. Issuing debt is another name for a _______. Bond.8
Issuing debt is another name for a _______.
Bond.

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

11. This type of business can sell stocks and bonds.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. Sole proprietorship & partnership12
With this type of ownership structure, the profit is taxed only 1 time.
Sole proprietorship & partnership

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

15. List the formula for marginal revenue. Change in TR/change in Q = MR14
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. The entity that offers a franchise. Franchiser.19
The entity that offers a franchise.
Franchiser.

21. List the formula for average total cost. TC/Q=ATC20
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. True/False Statements
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