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Microeconomics - Testbank 1 (Hubbard/O'Brien) Chapter 7 Firms, the Stock Market, and Corporate Governance d1) To succeed, entrepreneurs must: A produce the goods and services that consumers want at a ) lower cost than consumers themselves can produce. B organize the factors of production into a functioning, ) efficient unit. C obtain access to sufficient funds. ) D all of the above. ) b2) To succeed, firms need to: A produce a standardized product. ) B obtain access to sufficient funds. ) C produce a large amount of its product. ) D all of the above. ) a3) The type of business that has the fewest layers of management is: A a sole proprietorship. ) B a partnership. ) C a corporation. ) D all types of businesses have the same number of layers ) of management. c4) The type of business that is the most difficult to set up is: A a sole proprietorship. ) B a partnership. ) C a corporation. ) D all types of businesses are equally difficult to set up. ) c5) The type of business that has the greatest ability to raise funds is: A sole proprietorship. ) B partnership. ) C corporation. ) D all types of businesses have equal ability to raise funds. ) c6) A primary difference between a sole proprietorship and a partnership is: A sole proprietorships have unlimited liability while ) partnerships have limited liability. B partnerships can issue stocks and bonds while sole ) proprietorships cannot. C partnerships have more owners than do sole ) proprietorships. D sole proprietorships have more layers of management ) than partnerships. a7) Sole proprietorship and a corporation differ in that: A sole proprietorships have unlimited liability while ) corporations have limited liability. B sole proprietorships have an easier access to funds than ) corporations. C sole proprietorships face more taxes than corporations. ) D sole proprietorships are more difficult to organize than ) corporations. c8) Who controls a sole proprietorship? A Stockholders ) B Bondholders ) C The owner ) D all of these ) b9) Who owns a corporation? A The board of directors ) B The stockholders ) C The employees ) D The CEO ) c10 Limited liability means: ) A the personal assets of the owners can be claimed if the ) business is bankrupt. B only employees can have a claim on the assets of the ) business. C the personal assets of the owners cannot be claimed if ) the business is bankrupt. D anybody with a liability against a firm can claim only ) what their liability refers to. d1 An advantage that a sole proprietorship form of business 1) does NOT have is: A the owner having complete control over the business. ) B fewer government rules and regulations to comply with. ) C only one level of taxation. ) D ease of attaining additional funding. ) d1 An advantage that the corporate form of business 2) organization does NOT have is: A separation of ownership and business liability. ) B enhanced ability to raise funds. ) C ability to share risks. ) D favorable tax treatment. ) d1 Which of the following is an advantage of starting a new 3) business as a corporation? A Favorable tax treatment. ) B Easy to set up. ) C Inexpensive to legally organize. ) D Greater ability to raise funds. ) c14 The most common type of business in the United States is: ) A corporations. ) B partnerships. ) C sole proprietorships. ) D government firms. ) b1 The least common type of business in the United States is: 5) A corporations. ) B partnerships. ) C sole proprietorships. ) D entrepreneurs. ) a16 The type of businesses that earn the most revenue in the ) United States are: A corporations. ) B partnerships. ) C sole proprietorships. ) D entrepreneurs. ) a17 The type of businesses that earn the largest percentage of ) aggregate profits in the United States are: A corporations. ) B partnerships. ) C sole proprietorships. ) D entrepreneurs. ) d1 A corporation is operated and controlled in its day-to-day 8) activities by its: A board of directors. ) B stockholders. ) C employees. ) D management. ) b1 A corporation is owned by its: 9) A board of directors. ) B stockholders. ) C hired managers. ) D employees. ) c20 The board of directors of a corporation are selected by: ) A the state where the corporation is chartered. ) B the employees of the corporation. ) C the stockholders of the corporation. ) D the managers of the corporation. ) b2 An inside director is: 1) A the manager who directs production inside the firm. ) B a member of a corporate board of directors who is also a ) manager of the business. C a CEO that is selected by the corporation's board of ) directors. D a member of a corporate board of directors who also ) works for the government. c22 A situation where a hired manager does not have the same ) interests as the owners of the business is known as: A a conquest and control problem. ) B a financial problem. ) C a principal-agent problem. ) D a financial intermediary problem. ) b2 One way to try to reduce the principal-agent problem is to: 3) A threaten to liquidate the firm. ) B link top manager salaries to the profits of the firm or the ) price of the firm's stock. C have the CEO be a rotating position. ) D forbid managers from owning any company stock. ) d2 Sole proprietorships or partnerships can raise funds for 4) expansion by: A borrowing from someone or an institution willing to ) lend the funds. B reinvesting profit back into the business. ) C taking on a partner or more partners. ) D All of these are sources of funds. ) c 2 5 ) Financial intermediaries in a market economy: A create and print money. ) B keep the price level stable. ) C bring together savers and borrowers. ) D provide safe deposits for people and businesses. ) d2 Direct finance includes: 6) A ownership in corporations is sold in the form of ) common stock. B corporate bonds are sold to savers. ) C a flow of funds from savers to firm through financial ) markets. D all of the above. ) b2 If the coupon rate on a newly issued bond is higher than the 7) interest rate on similar bonds, then: A the market price of the bond will be equal to the face ) value. B the market price of the bond will be lower than the face ) value. C the market price of the bond will be higher than the face ) value. D the face value of the bond will fall. ) c28 The difference between the highest stock price and the ) lowest stock price over the previous year indicates: A the stock's coupon yield. ) B the stock's price-earnings ratio is. ) C how volatile the stock's market price has been. ) D the dividend yield. ) d2 Liabilities are: 9) A anything of value owned by a person or a business. ) B anything a person or a business owes to entities outside ) the business. C what occurs when a business is sued. ) D what a business owes to its stockholders. ) c30 An example of an implicit cost is: ) A the out-of-pocket expense to hire resources. ) B taxes owed to the state and Federal governments. ) C opportunity costs of using the firm's own resources. ) D the full cost of hiring workers, including fringe benefits. ) c31 Economic profit is: ) A gross revenue minus explicit costs. ) B gross revenue minus implicit costs. ) C gross revenue minus explicit and implicit costs. ) D equal to accounting profit. ) d3 A dollar today is more valuable than a dollar a year from 2) now because: A the dollar today can be immediately used to buy ) something. B a dollar a year from now will likely have less purchasing ) power because of inflation. C the unknown future is more risky than the known ) present. D all of the above. ) d3 Among the differences between a share of stock and a bond 3) is: A a stock can possibly pay dividends forever, but bonds ) have a fixed number of payments. B differences of opinion about a stock's future may vary ) considerably but there is less difference about a bond's future. C the future growth of a stock is more uncertain than the ) payments of a bond. D all of the above. ) a34 ) What must balance on a balance sheet? A Total assets must equal total liabilities plus equity. ) B Revenues must equal costs. ) C Retained earnings plus dividends paid must equal ) earnings per share. D All of these must balance. ) d3 Shown on a firm's income statement is a firm's: 5) A costs. ) B net worth. ) C revenues. ) D all of the above. ) c36 Operating income is: ) A explicit plus implicit costs. ) B stockholders' equity. ) C revenue minus operating expenses. ) D net profit. )