Question

A disadvantage of both proprietorships and partnerships is that

a.	in each, profit is taxed twice, as the income of the firm and the income of the owners.
b.	the owners cannot hire managers to help run the firms.
c.	the firms cannot pay dividends.
d.	the owners have unlimited liability for the debts of the firms.

____   27.   A corporation's income is taxed

a.	immediately after it is deposited in the bank.
b.	only before it is distributed to its owners.
c.	only after it is distributed to owners.
d.	both before and after it is distributed to owners.

____   28.   Corporations have the disadvantage of (i) double taxation; (ii) unlimited liability.

a.	i and ii
b.	i not ii
c.	ii not i
d.	neither i nor ii

____   29.   A recent issue of the Wall Street Journal headlined a story, "Bond Prices End Lower." From this we can conclude

a.	interest rates fell.
b.	interest rates rose.
c.	interest rates did not change.
d.	stock prices fell.

____   30.   When bond prices rise,

a.	stock prices must fall.
b.	interest rates must fall.
c.	interest rates must rise.
d.	bankruptcies generally increase.

____   31.   When interest rates in the economy fall, the prices of previously issued bonds

a.	must fall.
b.	must change, but may either rise or fall.
c.	must rise.
d.	may remain unchanged.

____   32.   A corporation with "plowback"

a.	deliberately earns negative profit on some activities in order to get better tax treatment.
b.	buys back shares of its stock from shareholders.
c.	retains some of its earnings for investment.
d.	issues unsecured stock.

____   33.   When a business has been profitable and needs to invest, its preferred method of financing will likely be

a.	plowback.
b.	stock issue.
c.	bond sales.
d.	equal issues of stocks and bonds.

____   34.   Speculators play a role in the economy similar to that played by

a.	farmers.
b.	investment banks.
c.	insurance companies.
d.	stockbrokers.

____   35.   Over the long run, stock prices have

a.	generally fallen.
b.	generally stayed roughly constant.
c.	generally risen.
d.	shown no identifiable pattern of change.

____   36.   When new farmers enter the wheat industry, the equilibrium price of wheat

a.	always falls.
b.	falls only if existing firms gang up on the entrant.
c.	falls only if existing firms are earning no economic profit.
d.	falls only if the new firm is more efficient than existing firms.

____   37.   A perfectly competitive firm would be willing to remain in the industry in the long run at zero economic profit because

a.	its total revenues would be positive.
b.	accounting profit would be negative.
c.	revenue is equal to all costs, including the opportunity cost of capital and labor.
d.	its fixed costs would prevent it from leaving the industry.

____   38.   An increase in market demand will cause an increase in industry output in the long run because

a.	new firms enter the industry.
b.	new firms enter the industry and all firms increase their output.
c.	all firms decrease their output but more new firms enter.
d.	no firms enter but the existing firms increase their output.

____   39.   Which of the following will occur if a natural monopoly is broken into two smaller firms?

a.	The price will drop.
b.	Industry output will increase.
c.	Production costs will increase.
d.	Industry output will decrease.

Answer 1

1. d) the owners have unlimited liability for the debts of the firms.

Under sole proprietorship and partnership, if firm loses then owner is liable to sell its personal assets to recover their debts.

27. b) only before it is distributed to its owners.

36. a) always falls.

When number of farmers increases then supply of wheat in the market increases which causes rightward shift of supply curve and resulted in fall in price.

37. c) revenue is equal to all costs, including the opportunity cost of capital and labor.

38. a) new firms enter the industry.

Increase in market demand induces new firms to enter into the market and produce goods.

39. c) Production costs will increase.

Natural monopoly arises because single firm is able to produce goods at lower production cost but if it breaks into smaller firms then cost of production increases.