Econ Chapter 7 Flashcards

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?

Limited liability

Full control by the owner

Tax benefits

All of the above (correct)

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?

Corporation Signup and view all the answers

Who are the owners of a corporation?

Its stockholders Signup and view all the answers

What is a person or group that buys a franchise called?

Franchisee Signup and view all the answers

When deciding whether or not to increase production, what should a business owner carefully consider?

The marginal cost of additional units Signup and view all the answers

What do economists believe is the major goal of each firm?

Maximize profit Signup and view all the answers

Which of the following is a fixed cost?

Rent Signup and view all the answers

Which of the following is a variable cost?

Raw materials Signup and view all the answers

Why does shirking occur?

People value leisure Signup and view all the answers

What disadvantages do proprietorships include?

Unlimited liability, limited ability to raise funds for expansion, and limited life of the business Signup and view all the answers

What is the disadvantage of a proprietorship that could directly affect the owner's personal assets?

Unlimited liability Signup and view all the answers

Which business organization combines two or more people's specializations with equal decision-making authority?

Partnership Signup and view all the answers

What are the disadvantages of partnerships?

All of the above Signup and view all the answers

How are corporations able to borrow large sums of money?

Issuing bonds Signup and view all the answers

How do bondholders differ from stockholders?

Bondholders receive predetermined interest Signup and view all the answers

What must a person or group do to purchase a franchise?

All of the above Signup and view all the answers

What law is a strawberry farmer experiencing when using more nutrients on a fixed plot of land without increased crop yield?

Diminishing marginal returns Signup and view all the answers

Marginal revenue equals?

The change in total revenue divided by the change in the quantity of output sold Signup and view all the answers

What are marginal decisions?

Incremental decisions Signup and view all the answers

What is the cost to a firm that changes according to the number of units produced?

Variable cost Signup and view all the answers

How is profit or loss computed?

Subtracting total cost from total revenue Signup and view all the answers

Why might we observe the law of diminishing marginal returns at a fast-food restaurant?

Crowded kitchen space reduces the productivity of new employees Signup and view all the answers

What is the cost to produce one additional unit called?

Marginal cost Signup and view all the answers

What do you get when you divide total cost by quantity produced?

Average total cost Signup and view all the answers

What happens to average total cost as a firm increases the quantity produced?

Average total cost decreases Signup and view all the answers

What is marginal cost equal to?

The change in total cost divided by the change in quantity of output Signup and view all the answers

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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Description

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.