Deck 3: The Business Firm: Organization,motivation,and Optimal Input Decisions

Question 1

A business firm that is regarded as a fictitious legal person is called a

A) front.
B) corporation.
C) silent partnership.
D) limited proprietorship.
E) special interest.

Answer 1

B

Question 2

An important distinction between corporate and unincorporated businesses is that

A) corporations are able to borrow money; unincorporated businesses must be financed from internal sources.
B) corporation owners have unlimited liability; unincorporated businesses are limited in their liability.
C) income earned by corporations may be subject to double taxation; income of unincorporated businesses is taxed only once.
D) corporations have a limited life; unincorporated businesses have an unlimited life.
E) it is impossible for the income of unincorporated businesses to be taxed at a higher rate than the income of corporations.

Answer 2

C

Question 3

A business that requires a new agreement whenever an owner leaves or a new owner arrives is a

A) firm.
B) corporation.
C) partnership.
D) foundation.
E) proprietorship.

Answer 3

C

Question 4

General Motors was formed in 1908 by

A) David Rothermel.
B) Walter Chrysler.
C) William Durant.
D) Henry Ford.
E) Alfred Sloan.

Question 5

What percentage of the nation's small businesses are proprietorships?

A) less than 10 percent
B) between 10 and 25 percent
C) between 26 and 50 percent
D) between 51 and 75 percent
E) more than 75 percent

Question 6

The system of checks and balances that guides the decisions of corporate managers is known as

A) implicit contracts.
B) corporate governance.
C) the production function.
D) profit maximization.
E) collective bargaining.

Question 7

According to government statistics,the number of business firms in the United States is

A) under 5 million.
B) between 5 and 10 million.
C) between 10 and 15 million.
D) between 15 and 20 million.
E) over 20 million.

Question 8

In order of their frequency,what are the three basic forms of business organization?

A) proprietorships, corporations, partnerships
B) corporations, proprietorships, partnerships
C) partnerships, proprietorships, corporations
D) proprietorships, partnerships, corporations
E) corporations, partnerships, proprietorships

Question 9

The bulk of goods and services consumed in the United States is produced by

A) foreign countries.
B) the U.S. government.
C) households.
D) business firms.
E) the stock market.

Question 10

An advantage of proprietorship is that the owner is faced with

A) complete control.
B) easy-to-obtain financing.
C) unlimited liability.
D) limited liability.
E) lower tax rates than those applicable to a partnership.

Question 11

A legal form of business organization that is easily established and yet has improved opportunities for greater financial resources and specialized know-how without being subject to double taxation of its income is the

A) corporation.
B) cartel.
C) simple proprietorship.
D) consortium.
E) partnership.

Question 12

The easiest and most inexpensive form of business organization to establish is a

A) firm.
B) corporation.
C) partnership.
D) foundation.
E) proprietorship.

Question 13

A group of individuals who wish to start a business that needs considerable funds to initiate and who wish protection in the event that their business fails should

A) form a simple proprietorship.
B) incorporate.
C) establish a partnership.
D) form a complex proprietorship.
E) establish a firm.

Question 14

An important distinction between corporate and unincorporated businesses is that

A) corporations have unlimited life, while unincorporated businesses are limited to the life spans of their owners.
B) income earned by corporations is not subject to the double taxation of unincorporated businesses.
C) corporations are subject to reorganization when major stockholders withdraw.
D) corporations have more trouble raising large sums of money than unincorporated businesses.
E) corporations issue common stock, while unincorporated businesses issue preferred stock.

Question 15

A business firm owned by a single individual is called a

A) monopoly.
B) closed shop.
C) proprietorship.
D) plant.
E) trust.

Question 16

Smaller auto firms such as Studebaker were unable to survive after World War II because

A) of Japanese competition.
B) of antitrust actions by the U.S. Department of Justice.
C) the reliability and durability of their cars were unsatisfactory.
D) they were not able to achieve a scale of production that would lower unit costs.
E) they were organized as proprietorships rather than corporations.

Question 17

A corporation is a

A) business with at least $100,000 in assets.
B) form of business organization in which 10 or more people agree to conduct a business.
C) business organization with a charter from the federal government.
D) firm owned by a single person.
E) fictitious legal person separate and distinct from its owners.

Question 18

The corporate form of business has the major advantage of

A) less red tape.
B) no double taxation.
C) limited liability.
D) unlimited liability.
E) complete control.

Question 19

Compared to the proprietorship,the partnership has the disadvantage of

A) limited liability to each partner.
B) encountering more red tape to remain in existence.
C) double taxation of each partner.
D) finding more difficulty in securing funds and specialized know-how.
E) unlimited liability of each partner.

Question 20

Large capital accumulation is facilitated in a corporate form of business because of

A) the separation of ownership and control.
B) the low tax rate on corporate profits.
C) the political power inherent in a large firm.
D) limited liability.
E) the high monopoly profits accruing to corporations.

Question 21

In this production function

A) total, average, and marginal products are all declining.
B) total and average products are rising.
C) total, average, and marginal products are all rising.
D) total product is rising, while average and marginal products are declining.
E) total product is rising, but the behavior of the average and marginal products cannot be determined.

Question 22

The following questions are based on the following information for an auto repair shop specializing in muffler installation.

The relationship described in the table is called a ________ function.

A) production
B) consumption
C) marginal
D) cost
E) bodily

Question 23

A variable input is one that

A) is undependable.
B) will be used as a last resort.
C) is unnecessary in a production function.
D) can be increased or decreased as output rises or falls.
E) is unaffected by changes in production.

Question 24

Which of the following is most likely to be a variable input in the transportation of crude oil?

A) a 26-inch diameter pipeline
B) a large crude oil carrier under long-term contract to Exxon
C) electricity required to run the pumps used in the pipeline
D) oil unloading facilities at a refinery
E) an oil drilling platform in the Gulf of Mexico

Question 25

The term that best denotes anything a firm uses in its production process is

A) machine.
B) plant.
C) asset.
D) output.
E) input.

Question 26

The following questions are based on the following information for an auto repair shop specializing in muffler installation.

The marginal product of the fourth worker is

A) 1.
B) 2.
C) 4.
D) 9.
E) 10.

Question 27

The technical relationship between inputs and outputs is called the

A) balance sheet.
B) income statement.
C) production function.
D) technostructure.
E) net worth.

Question 28

The following questions are based on the following production function:

Person-hours of labor would be considered a(n)________ input.

A) fixed
B) variable
C) average
D) break-even
E) diminishing

Question 29

An important element of the Sarbanes-Oxley Act of 2002 is that it

A) sets limits on the market shares of large corporations.
B) enables the Fed to actively intervene in the stock market by buying corporate securities during times of falling stock prices.
C) tightens the standards of accountability for the top corporate officers.
D) requires corporate boards of directors to have at least one elected public official as a member.
E) prevents corporations from declaring profits that are higher than they originally estimated.

Question 30

The Sarbanes-Oxley Act of 2002 was designed to increase

A) investor confidence.
B) government ownership.
C) the number of firms.
D) executive salaries.
E) income equality.

Question 31

A fixed input is one

A) for which the quantity of which cannot change as output rises or falls in the short run.
B) that rises in importance as output rises.
C) that is technologically obsolete.
D) that has been repaired.
E) for which the average output of which falls over time.

Question 32

The following questions are based on the following information for an auto repair shop specializing in muffler installation.

The average product of the third worker is

A) 1.
B) 3.
C) 4.
D) 9.
E) 27.

Question 33

A production function

A) shows the functions of production such as income, welfare, and employment.
B) reflects the technological constraints with which a firm must reckon.
C) shows the output necessary to produce one unit of input.
D) is a theoretical concept having no relevance to real-world production.
E) quantifies the amounts of variable inputs needed to produce fixed inputs.

Question 34

A manufacturing firm that decides to add enough people to its workforce to operate around the clock is

A) making a short-run operating decision.
B) holding the proportion of labor to capital constant.
C) decreasing the average product of its fixed inputs.
D) making operating decisions along its planning horizon.
E) using its facilities inefficiently.

Question 35

The following questions are based on the following information for an auto repair shop specializing in muffler installation.

In this example,the variable input is the

A) muffler installation service.
B) muffler shop.
C) autos repaired.
D) labor.
E) price of the installed mufflers.

Question 36

The standard assumption in economic analysis is that firms attempt to maximize

A) sales.
B) profits.
C) costs.
D) reliability.
E) production.

Question 37

Any production function embodies a

A) predetermined rate of return.
B) statement of the firm's goals and objectives.
C) rate of depreciation.
D) given state of technology.
E) financial commitment to common stockholders.

Question 38

The distinction between variable and fixed inputs

A) can be made only in the long run.
B) can be made by calculating the difference between an input's marginal product and its average product.
C) is based on the time period under consideration.
D) is that variable inputs are not subject to the law of diminishing returns.
E) reflects the difference between human and nonhuman inputs.

Question 39

In a given year in the production function of a typical college or university,a tenured faculty member would be an example of a(n)________ input.

A) fixed
B) variable
C) expendable
D) average
E) marginal

Question 40

An input whose quantity is unaffected as output rises or falls is a(n)________ input.

A) irrelevant
B) dominant
C) fixed
D) independent
E) superior

Question 41

If equal increments of an input are added,the quantities of other inputs being held constant,the resulting increments of product will decrease beyond some point.This sentence is a statement of the law of

A) supply.
B) demand.
C) diminishing marginal returns.
D) optimal thermodynamics.
E) indifference.

Question 42

If the marginal products of the first five units of labor are 120,105,85,60,and 30,respectively,then five units of labor can produce ________ units of output.

A) 30
B) 80
C) 90
D) 210
E) 400

Question 43

The following questions are based on the following information:
A firm uses inputs of labor, fertilizer, and land to produce strawberries (which are sold to wholesalers and processors). The quantity of land used is fixed at eight acres per season and the production function implies the relationships in the following table:

The marginal product of the fourth unit of labor is ________ bushels.

A) 1,000
B) 2,000
C) 3,100
D) 3,500
E) 4,000

Question 44

The distinction between the short run and the long run is

A) strictly a calendar matter; the long run is over 10 years.
B) dependent solely on the time period necessary to vary all relevant inputs.
C) that in the short run neither input nor output can be changed.
D) that the law of diminishing marginal returns is operational in the long run but not in the short run.
E) operationally meaningless since the firm is continually planning for the future in the short run.

Question 45

The following questions are based on the following diagram illustrating the weekly average and marginal products for salespersons in the appliance department of a large department store:

If the number of salespersons were increased from four to five,the number of appliances sold per week would

A) increase.
B) decrease.
C) remain unchanged.
D) decrease at first and then increase.
E) most likely change but how is uncertain.

Question 46

The following questions are based on the following diagram illustrating the weekly average and marginal products for salespersons in the appliance department of a large department store:

The additional number of appliances sold by adding the fifth person is

A) 1.
B) 3.
C) 7.
D) 8.
E) 15.

Question 47

The law of diminishing marginal returns means that as you increase the number of units of a variable input,after some point ________ will fall.

A) total output
B) costs of production
C) demand
D) marginal output
E) employment

Question 48

The following questions are based on the following information:
A firm uses inputs of labor, fertilizer, and land to produce strawberries (which are sold to wholesalers and processors). The quantity of land used is fixed at eight acres per season and the production function implies the relationships in the following table:

It can be said that this firm experiences diminishing returns beyond the employment of the ________ unit of labor.

A) first
B) second
C) third
D) fourth
E) fifth

Question 49

If the average product of labor falls from 5 to 4.5 when a sixth unit of labor is added,the marginal product of this sixth person is

A) 27.
B) 9.5.
C) 4.5.
D) 2.
E) 0.5.

Question 50

If the marginal products of the first five units of labor are 120,105,85,60,and 30,respectively,the average product of five units of labor is ________ units of output.

A) 6
B) 30
C) 80
D) 90
E) 150

Question 51

In economic analysis,the long run

A) is a period of time during which a firm may vary one or two of its inputs.
B) represents a planning horizon for a firm currently making an investment decision.
C) exists when all inputs are frozen.
D) is never realized.
E) is the time a firm needs to vary output to respond to changes in demand.

Question 52

One reason for the appearance of diminishing returns is that

A) each additional unit of an input has proportionately less of the other units with which to work.
B) the fixed inputs cannot produce any more as more units of a variable input are added.
C) whenever inputs are added to a production process, output falls because of increased inefficiency.
D) the marginal product continually rises whenever output is increased.
E) specialization becomes impossible as more units of a variable input are added to a fixed input.

Question 53

The addition to total output due to the addition of the last unit of an input is the ________ of the input.

A) cost
B) supply
C) average product
D) marginal product
E) combined product

Question 54

In the short run

A) all of the firm's inputs are fixed.
B) at least one of the firm's inputs is fixed.
C) none of the firm's inputs is fixed.
D) the output of the firm is fixed.
E) only things that are broken can be fixed.

Question 55

The following questions are based on the following diagram illustrating the weekly average and marginal products for salespersons in the appliance department of a large department store:

Diminishing marginal returns set in when adding the ________ salesperson.

A) first
B) second
C) third
D) fourth
E) fifth

Question 56

The law of diminishing marginal returns CANNOT predict the effect of an additional unit of input when

A) all other inputs are fixed.
B) it is possible to vary the proportion in which the various inputs are used.
C) technology is changing.
D) output rises.
E) marginal product is falling.

Question 57

The following questions are based on the following diagram illustrating the weekly average and marginal products for salespersons in the appliance department of a large department store:

The number of appliances sold per week when four salespersons are employed is

A) 4.
B) 5.
C) 8.
D) 20.
E) 32.

Question 58

The decline in incremental output as equal increments of labor are added to a fixed amount of land is called the law of

A) production.
B) diminishing marginal returns.
C) supply.
D) the land.
E) increasing numbers.

Question 59

A firm's total output divided by the amount of input used to produce it is the ________ of the input.

A) cost
B) supply
C) average product
D) marginal product
E) combined product

Question 60

The following questions are based on the following information:
A firm uses inputs of labor, fertilizer, and land to produce strawberries (which are sold to wholesalers and processors). The quantity of land used is fixed at eight acres per season and the production function implies the relationships in the following table:

The average product of the fourth unit of labor is ________ bushels.

A) 1,000
B) 2,000
C) 3,100
D) 3,500
E) 4,000

Question 61

For the firm mentioned in question 68,if the marginal product of B changes to 20,the firm should

A) increase the amount of B relative to A.
B) decrease the amount of B relative to A.
C) leave the relative amounts of A and B unchanged.
D) increase both A and B but leave the relative proportions of each unchanged.
E) decrease both A and B but leave the relative proportions of each unchanged.

Question 62

Costs are clearly minimized for a given level of output as long as the firm

A) uses inputs that do not exhibit declining productivity.
B) pays the same price for all of its inputs.
C) is not able to increase output by substituting a dollar's worth of input A for a dollar's worth of input B, or vice versa.
D) can increase output without increasing its cost.
E) equates the marginal products of both inputs A and B.

Question 63

To maximize its profit for a particular quantity of output,a firm should equate the

A) total amount spent on each of its inputs.
B) marginal product of each of its inputs.
C) average product of each of its inputs.
D) marginal product with the average product of each of its inputs.
E) marginal product of a dollar's worth of each input.

Question 64

Under diminishing marginal returns,as the amount of a variable input is reduced,the marginal product of a dollar's worth of the input will

A) exceed total product.
B) exceed average cost.
C) rise.
D) fall.
E) remain the same, but total input cost will rise.

Question 65

A production technique is essentially a

A) level of output.
B) given combination of inputs.
C) type of market structure.
D) form of public regulation.
E) length of time.

Question 66

The following questions are based on the following table, which illustrates for a given level of wheat production the ratio of marginal products for different combinations of land and labor:

If the price of land is $5 per unit and the price of labor is $2 per unit,then the least-cost combination of land and wheat is

A) 1.
B) 2.
C) 3.
D) 4.
E) 5.

Question 67

Which of the following presents an optimal combination of inputs?

A) marginal product of labor/marginal product of capital = price of labor/price of capital
B) marginal product of labor/price of capital = marginal product of capital/price of labor
C) marginal product of capital/price of labor = price of labor/marginal product of labor
D) marginal product of capital/marginal product of labor = price of labor/price of capital
E) marginal product of capital = marginal product of labor

Question 68

A firm uses inputs A and B when the price of A is $3 per unit and the price of B is $5 per unit.The marginal product of A is 15 units.If the firm is making an optimal input decision,the marginal product of B must be

A) 1.
B) 9.
C) 15.
D) 25.
E) 45.

Question 69

If inputs are combined so that their marginal product-price ratios are equal,________ minimized.

A) costs are
B) profits are
C) production is
D) efficiency is
E) returns are

Question 70

If for a firm the price of input A is four times the price of input B,costs will be minimized for a given level of output when the

A) firm uses four times as much input A as input B.
B) total product of input A is four times greater than the total product of input B.
C) average product of input A is four times greater than the average product of input B.
D) marginal product of input A is four times greater than the marginal product of input B.
E) total products of both A and B are equal to four times the marginal products of inputs A and B.

Question 71

The following questions are based on the following table, which illustrates for a given level of wheat production the ratio of marginal products for different combinations of land and labor:

If the price of land falls to $4 per unit and the firm wishes to hold output constant,it should choose combination

A) 1.
B) 2.
C) 3.
D) 4.
E) 5.

Question 72

Which of the following was NOT used by firms in the soft drink,automobile,and newspaper industries shown in The Business Firm video as a way to reduce costs in a competitive environment?

A) substituting inputs
B) producing their products in a foreign country
C) adopting new technology
D) achieving economies of scale
E) colluding with one another

Question 73

If the ratio of the marginal product of labor to the marginal product of land is 1:3,a firm making an optimal input combination should

A) employ three times as many workers as land units.
B) employ one-third as many workers as land units.
C) pay each worker three times as much as the price of a unit of land.
D) pay each worker one-third as much as the price of a unit of land.
E) use the same number of workers as units of land and pay each worker the same price as a unit of land.

Question 74

The use of computerized photo composition methods allowed the Asbury Park Press to

A) lay off reporters.
B) reduce the number of pages in its paper.
C) tailor its editions to target specific regions.
D) more cheaply purchase the paper on which to print its newspaper.
E) raise the price at the newsstand without reducing sales.

Question 75

The law of diminishing returns requires the assumption that

A) output is fixed.
B) factor proportions are fixed.
C) output increments are fixed.
D) returns are fixed.
E) at least one input must be fixed.