Questions and Answers
What could shirking be described as?
Doing less than an equal share of tasks
What are the advantages of a sole proprietorship?
A business that is legally distinct from its owners and considered an entity in its own right is a?
Corporation
What is a business organization that can conduct business in its own name and can own property as if it were an individual?
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Who are the owners of a corporation?
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What is a person or group that buys a franchise called?
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When deciding whether or not to increase production, what should a business owner carefully consider?
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What do economists believe is the major goal of each firm?
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Which of the following is a fixed cost?
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Which of the following is a variable cost?
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Why does shirking occur?
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What disadvantages do proprietorships include?
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What is the disadvantage of a proprietorship that could directly affect the owner's personal assets?
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Which business organization combines two or more people's specializations with equal decision-making authority?
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What are the disadvantages of partnerships?
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How are corporations able to borrow large sums of money?
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How do bondholders differ from stockholders?
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What must a person or group do to purchase a franchise?
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What law is a strawberry farmer experiencing when using more nutrients on a fixed plot of land without increased crop yield?
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Marginal revenue equals?
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What are marginal decisions?
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What is the cost to a firm that changes according to the number of units produced?
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How is profit or loss computed?
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Why might we observe the law of diminishing marginal returns at a fast-food restaurant?
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What is the cost to produce one additional unit called?
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What do you get when you divide total cost by quantity produced?
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What happens to average total cost as a firm increases the quantity produced?
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What is marginal cost equal to?
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Study Notes
Shirking and Its Implications
- Shirking refers to doing less than an equal share of tasks, often linked to the value individuals place on leisure.
Business Structure and Ownership
- Sole proprietorships have several advantages, including full control by the owner.
- Corporations are distinct legal entities separate from their owners, known as stockholders.
- Partnerships involve multiple individuals sharing decision-making authority and specialization.
Costs in Business
- Fixed costs are expenses that do not change with the level of output, such as rent.
- Variable costs fluctuate based on production, including raw materials and labor.
- Marginal cost represents the expense incurred from producing one additional unit.
Profit Maximization
- The primary goal for firms is to maximize profit by carefully considering marginal costs and revenues.
- Profit or loss is derived from subtracting total cost from total revenue.
Franchise and Business Growth
- A franchisee is an individual or group that purchases the rights to operate a franchise, and they must adhere to various obligations.
- Corporations can raise substantial capital through the issuance of bonds, which provide bondholders with fixed interest payments.
Production Dynamics
- The law of diminishing marginal returns occurs when adding more resources results in lesser increases in output, as seen in scenarios like farming.
- Average total cost is calculated by dividing total cost by the quantity produced, which tends to decrease when production increases.
Decision-Making in Business
- Marginal decisions are incremental choices made in response to changes in costs and revenues, essential for effective management.
- Owners should carefully evaluate marginal costs when contemplating production increases, as these directly impact profitability.
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Test your understanding of key concepts from Economics Chapter 7 with these flashcards. Each card contains a term and its definition, helping you reinforce your knowledge of business organization structures and concepts. Perfect for studying and review before exams.