Module 3 Practice Exam and Glossary – V14

Term

Definition

A form of non-price competition. Uses fears, emotions, social values, and rituals to appeal

Advertising

to potential buyers.

Chinese-American computer scientist who held more than 35 patents developments that

An Wang

were critical to advancing digital information technology that we depend on today.

He co-founded MySpace™ with Chris DeWolfe. He focused on the creative energy behind

Anderson, Tom

MySpace™--developing features and the look of the website.

Assets

Valuable physical goods.

The tools humans create to make the business more efficient— financial, and physical. For

Capital goods

a bakery this would include the oven, delivery truck, mixing bowls, building, etc.

Investments meant to increase productivity. Example: training sessions or a new computer

Capital Investment

system.

He reshaped the American South from a society heavily focused on cotton agriculture to

one that grew diverse crops and utilized crop rotation and discovered many different uses

Carver, George Washington

for peanut butter.

Making agreements, often in secret. For example: two dominant firms work together to set

Collusion

prices in an oligopoly.

Type of business with stockholders and bondholders; easy to get more money and to

Corporation

expand; hard to start and stop. Most expensive of the four business types to start up.

He co-founded MySpace™ with Tom Anderson. Under his leadership, MySpace grew from

DeWolfe, Chris

nothing to a website boasting millions of users and millions of dollars in income.

Emotional - Advertisement

Makes you sad or makes you laugh to try to get you to buy their product. Example: Adds for

Technique

pet shelters or raising money for hungry children.

Entrepreneur

A person who takes financial risk to try new business ideas.

Intelligence, imagination, and ability to take the risks that are needed to start up and

Entrepreneurship

maintain a business, a component of labor.

All the resources necessary to create a good or service - land, labor, capital, and

Factors of Production

entrepreneurship.

Fear - Advertisement

Makes you scared something bad will happen if you do not purchase this product. Example:

Technique

Use Ultra Max Deodorant! Don't be the stinky kid at the lunch table!

Financial capital

The funds to pay for all other resources in a business.

Fixed Costs

Costs that do not change from month to month. For example rent.

Horizontal Merger

When a company buys it's competition. Example: If Publix bought Winn-Dixie

She is the cofounder of kiva.org site. This business allows people to give microloans to

Jackley, Jessica

people in developing nations to help them start or expand a business.

Labor

The human work that goes into the business—physical and mental skills.

All the natural physical resources necessary to your product or service – water, wood, oil,

Land (factors of production)

etc.

At some point, adding resources will result in less output per additional unit of product (it

costs less to produce something up to a certain point). This is the reason for the oddly

Law of Diminishing Returns

shaped curve.

A type of corporation; no worry to have to use personal assets to pay-off debts; no problem

Limited Liability Company

of double taxation.

Marginal

Means additional

Is computed by finding the difference of previous two quantities for total cost (total cost of

Marginal Cost

pair #2 - #1).

Is computed by finding the difference of the previous two quantities (total revenue of pair

Marginal Revenue

#2 - #1).

Monopoly, Oligopoly, Monopolistic Competition, Purely Competitive. Least competitive to

Market Types

most--monopoly, oligopoly, monopolistic competition, and pure competition.

Producing where marginal cost is closest to marginal revenue without exceeding it will

Maximum profit

maximize the firm’s profits.

Occurs when two businesses form into one. Ways firms attempt to gain more control of the

Mergers

product market. Can be horizontal or vertical.

Market structures where many businesses produce similar but not exactly the same

products. This market has relatively few barriers to entry. Rather than work together to set

the price, many producers compete actively against one another to gain consumers. Pros:

Monopolistic Competition

Consumers have more choices. Cons: Difficult for firms to present their products as unique.

Market structure where a single business dominates a product or service. The least

business competition. Monopolies are least beneficial for consumers. Most beneficial to

owners. It has high barriers to entry, meaning it is difficult to become and stay the sole

producer of a good or service. Pros: Firm has price-setting ability. Cons: Consumers have

Monopoly

only one option.

He patented the telegraph in 1849 and paved the way for long-distance communication,

reshaping America literally in terms of westward expansion, railroad safety, and business

Morse, Samuel F.B.

efficiency.

The goal of non-price competition is to get buyers to notice and purchase your product

Non-price Competition

over other similar products regardless of price.

The market is dominated by few firms who can exert control over the market for their

products, often working together to determine price and production quantity. Pros: Firms

can work together to control market. Cons: Very difficult for non-dominant firms to grow

Oligopoly

and compete.

Two or more owners. Shared responsibility and profits. Each partner is liable for all the

business’s debts. Partners increase the resources available for the business and allow the

Partnership

opportunity for dividing the work.

He launched the first chain of department stores in the United States, commonly known as

Penney, James Cash

―Penney’s.

The demand curve is horizontal, meaning people will only demand a good at a specific price

Perfectly Elastic Demand

level.

Profit or Loss

Total Revenue – Total Cost

Market structure where many businesses produce a standardized product. This market is

easy to get into and get out of as a business owner. Most beneficial for consumers. Least

beneficial for owners. Pros: Consumers have plenty of knowledge of similar products.

Purely Competitive

Cons: Firms have little to no control of the market. Example: Oranges, peanuts, squash, etc.

Ritual - Advertisement

Buy it because it is the way things should always be done. Example: Easter isn’t complete

Technique

without a Coco-bunny Easter egg!

She designed the first commercial penicillin production plant. Her work made it possible to

produce and distribute penicillin widely, expanding Americans' access to the antibiotic drug

Rousseau, Margaret Hutchison

that can cure many formerly life-threatening bacterial illnesses.

His drive and marketing skills have made the café latte a daily habit for many Americans; it

Schultz, Howard

is because of him that Starbucks® has over 6,000 stores worldwide today.

Social Values - Advertisement

Makes you want to do something because everyone else is. Example: All cool teens wear

Technique

Chucko-bucko shoes - so should you!

Everything is controlled by the single owner. The owner makes all the profits and makes all

the choices. However, the owner is also the single person responsible for debts and

challenges. Everything about the company belongs to the sole proprietor. Least expensive

Sole Proprietorship

and easiest of the four business types to start up.

Total Cost

Fixed Cost + Variable Cost

Total Revenue

Quantity x Price

Types of Businesses

Limited liability corporation, sole proprietorship, partnership, corporation

His father founded Goya Foods®, distributor of Hispanic foods. Under Joseph’s direction

Goya Foods® became the largest U.S. Hispanic-owned food distribution company in the

Unanue, Joseph A.

United States.

Costs that change from month to month. For example the electric bill, water bills, and

Variable Costs

employee wages.

When a business buys the products it sells to lower costs (ex: Lowe’s buying the companies

Vertical Merger

that produce lumber, paint, and/or lawn mowers).

One of the first self-made African-American millionaires who was an early entrepreneur in

Walker, Madame C. J.

the beauty industry.

Module 3 Practice Exam V14

What do J. C. Penney and Madame C. J. Walker have in common?

They launched major department stores.

They were African American entrepreneurs.

They were early entrepreneurs in their industries.

They were women entrepreneurs.

Which of the following are shared by a typical corporation and a limited liability corporation? A. Easy to start and stop and have shared debt liability

B. Are incorporated and have limited liability

C. Have shareholders and are easy to start and stop

D. Protect personal assets and can sell stock to the public

A benefit of a purely competitive market is

A. equal product information for buyers and sellers

B. government sets the product prices to be competitive C. sellers may set their own prices

D. sellers use advertising to attract buyers

"Show your sweetheart how much you love her on Valentine's Day. We're having a sale on all chocolate!" This advertisement targets your

fears

senses

emotions

social values

5.

The slope of curve 1 first decreases then increases because of the Law of

Marginal Analysis

the Slope of Supply

the Slope of Demand

Diminishing Marginal Returns

6.

This is Pete's PPC curve for staying in touch with friends via phone vs. his weblog during one week. Which of the following is a true statement?

Pete uses weblog entries more than phone calls.

Pete calls friends more often than he writes weblog entries.

When Pete makes six phone calls he has time for four weblog entries.

When Pete writes one weblog entry he has time for six phone calls.

7.

A country needs to decide if it will defend itself ("guns") or feed its population ("butter"). Look at the graph. Construct a plan to help the country attain Point X.

Add more gunmakers to the labor force and decrease the number of butter makers

Streamline production of butter and begin assembly-line manufacturing of guns

Decrease the quality of guns and increase the demand for butter

Increase the quality of the butter and create more demand for guns

8.

Use this image to answer the following question. The ice cream shop needs five pounds of strawberries for every gallon of strawberry ice cream. The shop chose to produce four gallons of chocolate ice cream. How many pounds of strawberries should the shop purchase?

24

30

40

60

Which of the following is the least profitable investment for a cell phone company earning $10 per plan contract?

Offering free $10 gift for every new plan, generating 40 new plans per day

Opening a new store location with $200 daily operating cost, generating 30 new plans per day

Redesigning website at $50 daily operating cost, generating 10 new plans per day

Creating television commercial at $25 daily operating cost, generating 15 new plans per day

Which of the following is an example of capital in a pizza shop?

Dough

Pizza Oven

Workers

Tomatoes

Your friends opened a restaurant. A necessary labor resource would be?

Servers

Building

Oven

Tables and chairs

You would like to direct all activities in a business that you start. What would be the best option for you?

Partnership

Limited Liability Company

Sole Proprietorship

Corporation

Differentiate between land resources and labor resources that a business would need.

Land resources include items that have to come from land such as oil, gold, water, and paper, but labor resources include human beings in their specific employee role.

Land resources will include items that can be used on land such as trucks, trains, and tractors, but labor resources will include the actual working on the land.

Land resources will include all items that will take up land space such as buildings, parking lots, and barns yet labor resources will include the actual working on the land.

Land resources will include items that can be made from land or are taking up land such as trees, buildings, and stores, but labor resources include human beings in their specific employee role.

A business owner has several competitors in his area. She is not willing to change the price on her product. She plans to strengthen her competition with them via other routes. Predict one way in which she will do this:

She will lower her price.

She will raise her price.

She will close her store.

She will purchase additional advertising.

Tom has been renting a booth at the Flea market for 10 years. They are raising the rental fee to $10 per hour. He sells pirate coconuts for $5 each. How many pirate coconuts does he need to sell in one hour to earn a profit?

2

3

4

5

You are starting a Tree trimming business. Which of the following would be a needed land resource?

Oil

Chainsaw

ladder

trees

Why does Pure competition benefit consumers over producer?

Companies control price through demand.

Competition is driven by price.

Supply influences production more when competition is less.

With a small amount of producers they have control of the prices.

18.

Use this image showing the production possibilities curve for hours of gamming and FLVS classes to answer the following question. Andy needs about 4 hours per week for each FLVS class. If he decides to do to 8 hours of gamming each week, how many hours will he spend on his classes if working efficiently?

6

16

4

20

You and your best friend open a dog walking business together. Identify how your business will be classified and the capital you would need for your business

Sole proprietor and dogs

Sole proprietor and water

Partnership and employees

Partnership and a dog leach

Your dog walking business has become a great success. You and your best friend want to maintain control of the business, but protect your personal assets/property. Which of the following would best suit your growth

Limited Liability Company

Monopoly

Corporation

Sole Proprietor

You and your best friend decide to hire someone to help with the dog walking business. You pay your new employee $8 an hour and you currently charge $10 for 1 walk a day. Which of the following would be the most profitable for your business?

New employee will work for 2 hours a day and walk 2 dogs

New employee will work for 3 hours a day and walk 4 dogs

New employee will work for 5 hours a day and walk 6 dogs

New employee will work for 7 hours a day and walk 7 dogs

Gene decides to open a restaurant, and has plenty of money to put into his venture but has never actually worked in a restaurant in any capacity. Which would be the most ideal way to organize his business based on this information?

Corporation or sole proprietorship

Partnership or limited liability company

Limited liability or corporation

Sole proprietorship or partnership

23. Use the production possibilities diagram of days spent doing homework and days spent playing video games to answer the following question. Tina has 3 hours of spare time each day. How many hours will Tina have for her homework if she spends 6 days playing video games?

1

3

4

10

If Bob wants to open a Burger restaurant, which of the following would be necessary capital resources?

Restaurant manager, cash register, water

Servers, advertisements, plates

A location for the shop, burgers, plates

Silverware, cooks, coupons in a local flyer

Kalli’s new jewelry store has really started to increase in sales giving Kalli enough money that she can now start looking at expanding her business to further her success . Keeping in mind that Kalli is using the business structure of a sole proprietorship, which answer below would be the best one for her to consider?

Offering stock options to potential investors

Hiring additional staff

Expanding her products to include more sizes and designs

Moving the business to a larger location

Lucas has been seeing a steady increase in sales with his coffee shop. He is considering some different types of capital investments that should continue to increase his profit line and hopefully allow him to open another store. Which investment would be the most benefital to

Lucas’ long term business plan?

Hiring more employees

Adding additional coffee machines

Allowing stock options

Increasing his advertising

Shirley Marks, a new clothing store in the mall, has just been opened. With new clothing designs, cheaper prices, and constant sales this new store is a hit! It’s also a major competitor with the other stores in the mall. In evaluating the competition, which category does Shirley Marks fit into?

Monopoly

Pure Competition

Monopolistically Competitive

Oligopoly

If you were to start your own restaurant, which of the following would be an example of capital?

The workers hired to cook and serve

The risk taken to open a business

The stoves, ovens, tables, and chairs

The food needed to cook and serve to paying customers

David is looking to open his own business. He has a significant amount of start-up cash but doesn’t want to put his personal assets that he has worked so hard to acquire, at risk if the business was to fail. What would be the best way to structure his business and why?

a sole-proprietorship because it is the easiest and most widely used business structure

an LLC because it will differentiate between personal and business assets

a corporation because it will allow him to raise capital and only put the money he has invested

into the business at risk

d. a partnership because it will split the risk between him and another person

Florida Power and Lights is the only electrical provider in a particular area giving it a theoretical advantage of being able to set prices as it wants without having to worry about competition. This is an example of which type of industry structure?

monopoly

oligopoly

monopolistic competition

pure competition

Which of the companies below would be an example of a natural monopoly?

Hillsborough County Utilities (provides water/sewage)

Wal-Mart

Innerlight Surf Shop (only surf shop on the beach)

Comast (provides cable, internet, phone services

Starbucks Coffee has been in Panama City for 10 years. Caribou Coffee now opens it first shop in Panama City and offers similar products at similar prices but also includes free Wi-Fi and an internet station for patrons without laptops. How would you characterize this scenario?

price competition in a purely competitive market

price competition in a monopolistically competitive market

non-price competition in a purely competitive market

non-price competition is a monopolistically competitive market

Use the chart below, determine which of the following statements are true:

city utility workers and accountants require the most education/training

accountants and teachers have the least amount of training

accountants are in high demand

fast-food cashiers are in high demand

34.

(Use the marginal cost analysis graph) What point on the graph represents a situation where David is just starting out in his new business and is burdened by high initial start-up costs with very little profit in return?

Point 1

Point 2

Point 3

Point 4

35.

(Use the marginal cost analysis graph) What point on the graph represents a situation where David has been operating his business for a few years and has become extremely efficient and is now maximizing his profits?

Point 1

Point 2

Point 3

Point 4

David finds that he has 3 employees that have been stealing food from his restaurant. He fires these 3 employees and hires two new employees with very good resumes and proven work experience. This is an example of what?

entrepreneurship

labor

capital

land

Use the chart below to answer the question.

David and his one employee can normally produce around 50 hamburgers an hour. He decides to hire one additional worker to help increase production. Which day probably represents that start date of the new untrained employee?

Day 1

Day 3

Day 5

Day 7

Module 3 Practice Exam V 14 Answer Key 1. C: Both were one of the first entrepreneurs in their industries. 2. B: Both have their personal assets protected from lawsuits and are incorporated. 3. A: In a purely competitive market both the buyers and sellers are knowledgeable about the product and have equal information. An example of a purely competitive market would be the market for squash, oranges, or grapes. 4. C: Love is a strong emotion that they are using to convince people to buy their chocolate. 5. D: The law of diminishing returns says that it costs less to produce something up to a certain point. 6. D: When reading a productions possibility curve, follow the line from 1 weblog entry to point C. Then down from point C to 6 conversations with friends. 7. B: To move the production possibilities curve to the right, they must increase production with the resources they already have. 8. D: When reading a productions possibility curve, follow the line from 4 chocolates to point C. Then down from point C to 12 strawberries. Each gallon of strawberry ice cream needs 5 pounds of strawberries. Multiply 12 gallons x 12 pounds to get 60. 9. A: The store only earns 10 per new plan, but giving away a $10 gift they will make no profits. 10. B: Remember capital is going to be any of the tools that you will need to run your business efficiently. In the case above, the pizza oven will help the owner achieve this goal. 11. A: When thinking of labor, remember it is the human work that goes into the business. In the questions above servers will fall into labor. 12. C: Sole proprietorship would be the correct answer because it is the only option that allows you to have full say in the business. Remember a sole proprietorship is owned and operated by a single entrepreneur. 13. A: because all land resources originate from the land such as oil, paper, water, cotton, etc. Labor resources will be the human resources for the business which includes any and all employees. 14. D: because it is a great example of non-price competition. 15. B: because that would equal $15 in one hour which would mean he could pay his booth rental for the hour and make a $5 profit. 16. A: In this scenario it may be tempting to pick trees but in this situation the tress are closer to the customer since you are offering to trim them for a fee. So this would be considered your product. The oil is the untouched resource and would be the correct answer. 17. B: In this question you are looking for the benefits to the consumer and in a pure competition price is the biggest difference between the products give the consumer an advantage. There are also many different sellers competing for your business. 18. B: For this question you have to read the chart and you will see at 8 hours of gamming Andy will be able to do 4 FLVS classes. Then you have to multiply 4 classed by 4 hours for each class and it will take him 16 hours each week to do his class. 19. D (You and your friend have entered a partnership. Capital is a tool you would need to run your business successfully – a leach is a tool to walk the dog).

20. A (a Limited Liability Company reduces personal liability for the owners). 21. C (new employee works for 5 hours a day and is able to walk 6 dogs; 5hours x $8hr = $40; 6 dogs at $10 a walk = $60. $60 -$40 = $20 in profit). 22. B: Gene has the money to invest, but not the skills needed to understand the business he is opening. He is also opening a single location and not multiple locations or selling stocks in the business. So this eliminates sole proprietor (based on his lack of skills in restaurants) and also eliminates corporation. 23. B: Recall that the graph is listing days spent on an activity, and each day Tina has 3 hours to dedicate to either homework or studying. If she spends 6 days playing video games, that would be 18 hours she spends on video games. The 6 days of video games correlates to the 1 day of homework, which equals 3 hours spent doing homework. 24. C: Necessary capital are the tools humans create to make the business more efficient—financial and physical. Therefore a restaurant manager in part a would be labor, and water would be land. Servers would also fall to labor in part b, and cooks in answer d. The correct answer is c, since all three of these options are capital resources necessary to start a burger restaurant. 25. C: Since Kalli is using a sole proprietorship, she is able to keep all the profits but must also do all of the work and pay for all of the expenses. The business is also new. Given these two points, the best option would be for Kalli to expand her products to appeal to a larger group of consumers. With the added profit that could occur from this choice, Kalli could then eventually begin looking at attempting moving or hiring other staff. 26. B: Capital is the factor of production that focuses on those things that help increase the production of a good. This could be in the form of money or in items/machines such as additional coffee machines. 27. C: Shirley Marks is competing with similar businesses in the mall, making this scenario an example of Monopolistically Competitive. 28. C – The stoves, ovens, tables, and chairs - Physical Capital is the machinery it takes to run a business 29. B – an LLC because it will differentiate between personal and business assets - “but doesn’t want to put his personal assets” is key to protection which is what an LLC provides 30. A – monopoly - Market structure where a single business dominates a product or service. 31. A - Hillsborough County Utilities (provides water/sewage) – Natural Monopolies are industries where produced most efficiently when there is one supplier 32. D. non-price competition is a monopolistically competitive market – similar product and costs/prices but additional services 33. C. accountants are in high demand – highest wage based on need 34. A. Point 1 – where initial investment begins 35. C. Point 3 – where marginal revenue meets marginal cost 36. A. entrepreneurship – David firing employees is the decision making and running of the company. 37. B. Day 3 – Training of the new employee cuts production until production can get back to normal standards and then increase above the initial amount